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Link co purchased machinery that cost 810000 on

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Link Co. purchased machinery that cost $810,000 on January 4, 2014. The entire cost wasrecorded as an expense. The machinery has a nine-year life and a $54,000 residual value. Theerror was discovered on December 20, 2016. Ignore income tax considerations.86.Link's income statement for the year ended December 31, 2016, should show thecumulative effect of this error in the amount ofa. $726,000.b. $642,000.c. $558,000.d. $0.87.Before the correction was made, and before the books were closed on December 31,2016, retained earnings was understated bya. $810,000.b. $726,000.c. $642,000.d. $558,000.Use the following information for questions 88 and 89.Ernst Company purchased equipment that cost $750,000 on January 1, 2015. The entire costwas recorded as an expense. The equipment had a nine-year life and a $30,000 residual value.Ernst uses the straight-line method to account for depreciation expense. The error wasdiscovered on December 10, 2017. Ernst is subject to a 40% tax rate.88.Ernst’s net income for the year ended December 31,2015, was understated bya. $402,000.b. $450,000.c. $670,000.d. $750,000.89.Before the correction was made and before the books were closed on December 31,2017, retained earnings was understated bya. $332,000.b. $336,000.c. $354,000.d. $450,000.Multiple Choice AnswersComputationalItemAns.ItemAns.ItemAns.ItemAns.ItemAns.ItemAns.ItemAns.56.b61.d66.d71.a76.c81.c86.d57.b62.b67.c72.a77.a82.a87.c58.c63.c68.c73.d78.c83.a88.a59.d64.b69.a74.d79.d84.b89.c60.c65.d70.b75.d80.c85.cDownloaded by agua bendita ([email protected])lOMoARcPSD|12751702
Accounting Changes and Error Analysis22 - 17MULTIPLE CHOICECPA Adapted90.Which of the following should be reported as a prior period adjustment?Change inChange fromEstimated LivesUnaccepted Policyof Depreciable Assetsto Accepted Policya.YesYesb.NoYesc.YesNod.NoNo91.On December 31, 2016, Grantham, Inc. appropriately changed its inventory valuationmethod to FIFO cost from average cost for financial statement and income tax purposes.The change will result in a $1,500,000 increase in the beginning inventory at January 1,2016. Assume a 30% income tax rate. The cumulative effect of this accounting change onbeginning retained earnings isa. $0.b. $450,000.c. $1,050,000.d. $1,500,000.92.On January 1, 2016, Frost Corp. changed its inventory method to FIFO from average costfor both financial and income tax reporting purposes. The change resulted in an $800,000increase in the January 1, 2016 inventory. Assume that the income tax rate for all years is30%. The cumulative effect of the accounting change should be reported by Frost in its2016a.retained earnings statement as a $560,000 addition to the beginning balance.b.income statement as a $560,000 cumulative effect of accounting change.c.retained earnings statement as an $800,000 addition to the beginning balance.d.income statement as an $800,000 cumulative effect of accounting change.93.On January 1, 2013, Lake Co. purchased a machine for $792,000 and depreciated it bythe straight-line method using an estimated useful life of eight years with no residualvalue. On January 1, 2016, Lake determined that the machine had a useful life of sixyears from the date of acquisition and will have a residual value of $72,000. Anaccounting change was made in 2016 to reflect these additional data. The accumulateddepreciation for this machine should have a balance at December 31, 2016 ofa. $438,000.

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Term
Fall
Professor
NoProfessor
Tags
Balance Sheet, Generally Accepted Accounting Principles, Wit, statement of Financial Position

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