1) A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used
for tax purposes. The entry to record this change should include a
credit to Deferred Tax Liability.
debit to Retained Earnings in the
amount of the difference on prior
credit to Accumulated Depreciation.
debit to Deferred Tax Asset.
2) Which of the following is NOT a retrospective-type accounting change?
3) A company changes from percentage-of-completion to completed-contract, which is the method used for tax purposes. The entry to
record this change should include a
4) Which of the following describes a change in reporting entity?
5) On January 1, 2005, Baden Co. purchased a machine, which was its only depreciable asset, for $300,000. The machine has a 5-year
life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-
line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the
straight-line method for depreciation of the machine. Assume that Baden can justify the change.
Baden's income before depreciation, before income taxes, and before the cumulative effect of the accounting change, if any, for the year
ended December 31, 2008, is $250,000. The income tax rate for 2008, and for 2005 through 2007, is 30%. What amount should Baden
report as net income for the year ended December 31, 2008?
6) Hannah Company began operations on January 1, 2007, and uses the FIFO method in costing its raw material inventory.
Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net
income. Accordingly, the following information has been developed:
Based upon the above information, a change to the LIFO method in 2008 would result in net income for 2008 of