ACCOUNTING CHANGES[1]

ACCOUNTING CHANGES[1] - ACCOUNTING CHANGES MULTIPLE-CHOICE...

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ACCOUNTING CHANGES MULTIPLE-CHOICE QUESTIONS (1-17) 1. On January 1, 2008, Bray Company purchased for 240,000 a machine with a useful life of ten years and no salvage value. The machine was depreciated by the double declining balance method and the carrying amount of the machine was 153,600 on December 31, 2009. Bray changed retroactively to the straight-line method on January 1, 2010. Bray can justify the change. What should be the depreciation expense on this machine for the year ended December 31, 2010? a.15,360 b.19,200 c.24,000 d.30,720 Items 2 and 3 are based on the following: On January 1, 2008, Warren Co. purchased a 600,000 machine, with a five-year useful life and no salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The machine’s carrying amount was 240,000 on December 31, 2009. On January 1, 2010, Warren changed retroactively to the straight-line method for financial statement purposes. Warren can justify the change. Warren’s income tax rate is 30%. 2. In its 2010 income statement, what amount should Warren report as the cumulative effect of this change? a.120,000 b.84,000 c.36,000 d.0 3. On January 1, 2010, what amount should Warren report as deferred income tax liability as a result of the change? a. 120,000 b. 72,000 c. 36,000 d.0
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4. On January 2, 2010, to better reflect the variable use of its only machine, Holly, Inc. elected to change its method of depreciation from the straight-line method to the units of production method. The original cost of the machine on January 2, 2008, was 50,000, and its estimated life was ten years. Holly estimates that the machine’s total life is 50,000 machine hours. Machine hours usage was 8,500 during 2008 and 3,500 during 2009.Holly’s income tax rate is 30%. Holly should report the accounting change in its 2010 financial statements as a(n) a. Cumulative effect of a change in accounting principle of 2,000 in its income statement. b. Adjustment to beginning retained earnings of 2,000.
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ACCOUNTING CHANGES[1] - ACCOUNTING CHANGES MULTIPLE-CHOICE...

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