3. In the blank to the left of each question, fill in the letter from the follow

Question

3. In the blank to the left of each question, fill in the letter from the following list which best describes the presentation of the item on the financial statements of Gorden Corporation for 2013:

a. Prospective type change in accounting principle

b. Change in estimate

c. Error correction

d. Retroactive type change in accounting principle

e. None of the above

_______ 1. In 2013, the company changed its method of recognizing income from the completed-contract method to the percentage-of-completion method.

_______ 2. At the end of 2013, an audit revealed that the corporation’s allowance for doubtful accounts was too large and should be reduced to 2%. When the audit was made in 2012, the allowance seemed appropriate.

_______ 3. Depreciation on a truck, acquired in 2010, was understated because the service life had been overestimated. The understatement had been made in order to show higher net income in 2011 and 2012.

_______ 4. The company switched from a LIFO to a FIFO inventory valuation method during the current year.

_______ 5. In the current year, the company decides to change from expensing certain marketing costs to capitalizing these costs. The Company should have been capitalizing these costs under GAAP in prior years.

_______ 6. During 2013, a long-term bond with a carrying value of $3,600,000 was retired at a cost of $4,100,000.

_______ 7. After negotiations with the IRS, income taxes for 2011 were established at $42,900. They were originally estimated to be $28,600.

_______ 8. In 2013, the company changed its method of accounting for long-term investments from the equity method to the fair value method.

_______ 9. In computing the depreciation in 2011 for equipment, an error was made which overstated income in that year $75,000. The error was discovered in 2013.

_______ 10. In 2013, the company changed its method of depreciating plant assets from the double-declining balance method to the straight-line method.

Explanation / Answer

  d. Retroactive type change in accounting principle 1. In 2013, the company changed its method of recognizing income from the completed-contract method to the percentage-of-completion method(long-term effect is felt)

b.Change in estimate 2. At the end of 2013, an audit revealed that the corporation’s allowance for doubtful accounts was too large and should be reduced to 2%. When the audit was made in 2012, the allowance seemed appropriate.(Mostly Prospective- revising accounting estimates)

c. Error correction 3. Depreciation on a truck, acquired in 2010, was understated because the service life had been overestimated. The understatement had been made in order to show higher net income in 2011 and 2012. (Non-counterbalancing error -for which rectification entry is needed ,even if books are closed)

d. Retroactive type change in accounting principle 4. The company switched from a LIFO to a FIFO inventory valuation method during the current year.

c. Error correction 5. In the current year, the company decides to change from expensing certain marketing costs to capitalizing these costs. The Company should have been capitalizing these costs under GAAP in prior years.

e. None of the above 6. During 2013, a long-term bond with a carrying value of $3,600,000 was retired at a cost of $4,100,000.

b. Change in estimate 7. After negotiations with the IRS, income taxes for 2011 were established at $42,900. They were originally estimated to be $28,600. (Changes are effected in current period)

d. Retroactive type change in accounting principle 8. In 2013, the company changed its method of accounting for long-term investments from the equity method to the fair value method.

c. Error correction 9. In computing the depreciation in 2011 for equipment, an error was made which overstated income in that year $75,000. The error was discovered in 2013. (Non-counterbalancing error -for which rectification entry is needed ,even if books are closed)
b. Change in estimate 10. In 2013, the company changed its method of depreciating plant assets from the double-declining balance method to the straight-line method. (Changes are effected in current period)

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