0% found this document useful (0 votes)

18 views47 pages

TB 21

Chapter 21 of the Test Bank for Intermediate Accounting covers accounting changes and error analysis, detailing three types of accounting changes: policy changes, estimate changes, and corrections of prior period errors. It explains how to account for these changes either retrospectively, currently, or prospectively, and outlines the required disclosures for each type. Additionally, it highlights the differences between IFRS and ASPE in accounting for these changes and the implications of errors on financial statements.

Uploaded by

chenxifeng956

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as DOCX, PDF, TXT or read online on Scribd

0% found this document useful (0 votes)

18 views47 pages

TB 21

Uploaded by

chenxifeng956

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as DOCX, PDF, TXT or read online on Scribd

You are on page 1/ 47

Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

CHAPTER 21
ACCOUNTING CHANGES AND ERROR ANALYSIS

CHAPTER STUDY OBJECTIVES

1. Identify and differentiate among the types of accounting changes and explain how to account for
them. There are three types of accounting changes. (1) Change in accounting policy: a change in the
specific principles, bases, rules, or practices that an entity applies in the preparation of its financial
statements. (2) Change in an accounting estimate: a change in the carrying amount of an asset or
liability or the amount of an asset’s periodic consumption from reassessing the current status of the
asset or liability or the expected future benefits or obligations associated with it. (3) Correction of a
prior period error: a change caused by an omission from or misstatement in prior years’ financial
statements from the misuse of or failure to use reliable information that existed at the time the
statements were completed and that could have been used in their preparation and presentation.
Accounting changes could be accounted for retrospectively, currently, or prospectively. The
retrospective method requires restatement of prior periods as if the accounting change had been
used from the beginning, or the error had never been made. The current method calculates a catch-up
adjustment related to the effect on all prior years, and reports it in the current period. Prospective
treatment requires making no adjustment for past effects, but instead, beginning to use the new
method in the current and future periods.
A change in accounting policy due to the initial application of a new primary source of GAAP is
accounted for according to the transitional provisions of that standard. If none is provided, or if it is a
voluntary change, retrospective application is used. A change in an accounting estimate is accounted
for prospectively. Errors are corrected through full retrospective restatement.
Comparative periods are presented as if the new accounting policy had always been applied. The
opening balance of each affected component of equity is adjusted for the earliest prior period
presented, and all other affected comparative amounts for each prior period provided are restated.
When the effects on particular prior periods are impracticable to determine, the cumulative effect of
the change is shown as an adjustment to the beginning retained earnings of the earliest prior period
possible. Required disclosures therefore include identifying the nature of the change, the effect on
each financial statement item affected, the amounts relating to periods prior to those that are
presented, and why full retrospective application was not applied, if applicable. If the change resulted
from applying transitional provisions, information about the standards and the provisions is provided,
including, if under IFRS, the effects on future periods. If it is a voluntary change, excluding specific
ASPE accounting changes, the reasons why the new policy results in more relevant information are
disclosed. Information about the future effect of changes in primary sources of GAAP that are issued
but not yet effective is also required under IFRS. An opening SFP is required under IFRS for the earliest
comparative period presented.
Comparative amounts for prior periods affected by errors are restated, unless under IFRS it is not
practicable to identify the effect on specific past periods. If the error is in a period before the earliest
comparative statements included, the opening balances of the earliest comparative period are
restated. An opening SFP is required under IFRS for the earliest comparative period presented as is
information about the nature of any impracticality. The nature of the error and the amount of the

21-1
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

adjustment to each comparative financial statement line item and to EPS are all required disclosures.
Under prospective treatment of accounting for changes in estimates, only the current and future fiscal
periods are affected. There is no adjustment of current-year opening balances and no attempt is made
to “catch up” for prior periods. The nature and amount of a change in an accounting estimate that
affects the current period or, under IFRS, is expected to affect future periods, is required to be
disclosed.

2. Identify economic motives for changing accounting methods and interpret financial statements
where there have been retrospective changes to previously reported results. Some of the aspects
that affect decisions about the choice of accounting methods are (1) political costs, (2) the capital
structure, (3) bonus payments, and (4) the desire to smooth earnings. Financial statement users
should analyze the information presented about accounting changes and adjust any trend
information affected.

3. Identify differences in accounting between IFRS and APSE. The accounting standards under ASPE
are very similar to those under IFRS. Minor differences exist, such as IAS 8’s permitting partial
retrospective treatment for the correction of an accounting error, ASPE allowing specific voluntary
changes without justification on a “reliable and more relevant” basis, and IFRS requiring additional
disclosures.

4. Correct the effects of errors and prepare restated financial statements. Three types of errors can
occur: (1) errors that affect only the SFP, (2) errors that affect only the income statement, and (3)
errors that affect both the SFP and the income statement. This last type of error is classified either as
(a) a counterbalancing error, where the effects are offset or corrected over two periods; or (b) a non-
counterbalancing error, where the effects take longer than two periods to correct themselves.

21-2
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

MULTIPLE CHOICE QUESTIONS

Answer No. Description

b 1. Identify accounting changes
d 2. Voluntary change in accounting policy
c 3. Identify changes in accounting policy
c 4. Identify accounting errors
a 5. Identify changes in accounting policy
c 6. Identify a correction of an error
b 7. Accounting policy changes and errors
d 8. Cumulative effect of accounting policy changes
a 9. Alternative accounting methods allowed for accounting changes
d 10. Transitional provisions
c 11. Identify correct statement
a 12. Retrospective application
a 13. Change accounted for prospectively
b 14. Change in accounting estimate
d 15. Accounting for retrospective change
b 16. Underlying principle of retrospective application
c 17. Change in inventory costing method
c 18. Disclosures for accounting errors
b 19. Adjustments required when transitioning to IFRS
b 20. Use of retrospective treatment
c 21. Disclosures required under IFRS
d 22. Change in depreciation method
b 23. Identify a change in accounting estimate
b 24. Change in asset service life
c 25. Calculate net income with change in inventory costing method
c 26. Cumulative effect of inventory costing change
a 27. Cumulative effect of inventory costing change
c 28. Calculate effect on retained earnings of error in recording asset
a 29. Calculate cumulative effect of error on income statement
c 30. Calculate revised depreciation expense
d 31. Calculate revised depreciation expense
c 32. Calculate net income with change in depreciation method
a 33. Calculate effect on net income with change in an accounting estimate
d 34. Calculate depreciation expense after a change in estimated life
c 35. Balance of accumulated depreciation after a change in estimate
b 36. Calculate carrying value of a patent with a change in estimate
a *37. Correcting counterbalancing errors
b *38. Identifying counterbalancing errors
b *39. Counterbalancing errors
c *40. Impact of failure to record purchase and count in ending inventory
d *41. Impact of incorrectly recording depreciation
c *42. Impact of failure to accrue insurance costs
d *43. Effect of errors on net income

21-3
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

c *44. Effect of errors on working capital

c *45. Effect of errors on retained earnings
a *46. Effect of errors on net income and retained earnings
Answer No. Description
a *47. Effect of errors on net income
b *48. Effect of errors on retained earnings
c *49. Effect of errors on working capital
a *50. Retained earnings balance with multiple errors
b *51. Depreciation expense to be recorded following an error

*This topic is dealt with in an Appendix to the chapter.

EXERCISES
Item Description
E21-52 Conditions and disclosures for a change in accounting policy under IFRS and ASPE
E21-53 Matching accounting changes to situations
E21-54 Matching disclosures to situations
E21-55 Change in estimate, voluntary change in accounting policy, correction of errors
E21-56 Recognition of accounting changes or corrections
E21-57 Effects of errors on financial statements
E21-58 Effects of errors on net income
E21-59 Factors in choosing accounting methods and procedures
E21-60 IASB and accounting policies and estimates
*E21-61 Error corrections
*E21-62 Non-counterbalancing error correction

*This topic is dealt with in an Appendix to the chapter.

PROBLEMS
Item Description
P21-63 Corrections of errors in prior years
P21-64 Accounting for accounting changes and error corrections
P21–65 Changes in estimates
P21-66 Accounting policies under IFRS and ASPE
*P21-67 Error corrections and adjustments

*This topic is dealt with in an Appendix to the chapter.

21-4
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

MULTIPLE CHOICE QUESTIONS

1. Which of the following is NOT considered to be an accounting change?

a) change in accounting estimate
b) change in the composition of the board of directors
c) change in accounting policy
d) correction of a prior period error

Answer: b

Difficulty: Easy
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic

2. One condition required by IFRS is that a voluntary change in accounting policy must result in
information that is
a) more reliable than before.
b) more reliable, but equally as relevant as before.
c) both more reliable and more relevant.
d) more relevant, but equally as reliable as before.

Answer: d

3. Which of the following is NOT considered to be a change in accounting policy?

a) changing from weighted average to FIFO for valuing inventories
b) initial adoption of a new accounting standard
c) reclassifying items on the financial statements of prior periods to make the statements more
comparable
d) changing from the cost basis to the fair value model for measuring investments

Answer: c

21-5
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

4. All of the following are considered to be accounting errors except for

a) changing from the cash basis to the accrual basis.
b) expensing the cost of a new machine.
c) changing depreciation methods from declining balance to straight line.
d) failing to accrue wages payable at year end.

Answer: c

5. All the following are considered to be changes in accounting policy except for
a) a change in depreciation method.
b) a change from FIFO to weighted average cost.
c) the initial adoption of a new accounting standard.
d) a change in accounting for a defined benefit pension plan from deferral and amortization to
immediate recognition.

Answer: a

6. An example of a correction of an error in previously issued financial statements is a change

21-6
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

a) from the FIFO method of inventory valuation to the average cost method.
b) in the service life of plant assets, based on changes in the economic environment.
c) from the cash basis of accounting to the accrual basis of accounting.
d) in the tax assessment related to a prior period.

Answer: c

7. All the following are allowed for accounting changes, except for
a) using retrospective application for an accounting policy change without restatement, if
restatement is impractical.
b) using net accounting errors for disclosure purposes.
c) using prospective application for an accounting policy change, if allowed in the transition policy.
d) using prospective application for a change in estimate.

Answer: b

8. The cumulative effect of a change in accounting policy is reported

a) as an unusual item.
b) between discontinued operations and net income on the income statement.
c) as an adjustment to only the current year's beginning retained earnings.
d) as an adjustment of beginning retained earnings of the earliest year presented.

Answer: d

21-7
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

CPA: Financial Reporting

Bloomcode: Knowledge
AACSB: Analytic

9. Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for
reporting accounting changes?
a) prospective and retrospective
b) current and retrospective
c) current and prospective
d) retrospective only

Answer: a

10. For changes in accounting policy that result from applying the transitional provisions of a primary
source of GAAP, the following disclosure is required:
a) management's opinion on whether the change is in line with company goals.
b) the impact on the statement of cash flows.
c) how the adjustment will impact the future periods.
d) a description of the provisions affecting future periods if the change may have an effect in future
periods.

Answer: d

11. Which of the following statements is CORRECT?

a) Changes in accounting policy are always handled in the current or prospective period.
b) Prior year statements should always be restated for changes in accounting estimates.
c) A change from the deferral and amortization method to the immediate recognition method of

21-8
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

accounting for defined benefit pension plans should be treated as a change in accounting policy.
d) Correction of prior period error should be presented as an adjustment on the current income
statement.

Answer: c

12. Retrospective application is required for all

a) errors and non-mandated policy changes.
b) changes in estimates and non-mandated policy changes.
c) errors and changes in estimates.
d) changes in estimates.

Answer: a

13. Which type of accounting change may be accounted for in current and future periods only?
a) change in accounting estimate
b) change in inventory costing method
c) change in accounting policy
d) correction of an error

Answer: a

21-9
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

AACSB: Analytic

14. Which of the following is (are) the proper time period(s) to record the effects of a change in
accounting estimate?
a) retrospectively only
b) current period and prospectively
c) current period and retrospectively
d) current period only

Answer: b

15. Accounting for a retrospective change requires

a) reissuing all prior financial statements affected by the change.
b) adjusting the ending balance of retained earnings for the current year.
c) reporting the “catch-up” adjustment on the current income statement.
d) adjusting the opening balance of each affected component of equity for the current year.

Answer: d

16. The underlying principle of the retrospective application method is to

a) apply changes currently and in the future.
b) present all comparative periods as if the new accounting policy had always been used.
c) make assumptions about what management’s intent was in prior years.
d) disclose all mistakes made in the past.

Answer: b

21-10
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

17. Stockton Ltd. changed its inventory system from FIFO to average cost. What type of accounting
change does this represent?
a) A change in accounting estimate for which the financial statements for the prior periods included
for comparative purposes do not need to be restated.
b) A change in accounting policy for which the financial statements for prior periods included for
comparative purposes do not need to be restated.
c) A change in accounting policy for which the financial statements for prior periods included for
comparative purposes should be restated.
d) A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.

Answer: c

18. All items below are required disclosures for the correction of an accounting error except
a) the nature of the error.
b) the amount of the correction to basic and fully diluted EPS and to each line item on the financial
statements presented for comparative.
c) internal control breakdown that caused the error.
d) the amount of the correction made at the beginning of the earliest prior period presented.

Answer: c

21-11
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

AACSB: Analytic

19. When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in
line with IFRS
a) are recognized directly in other comprehensive income.
b) are recognized directly in retained earnings.
c) must be accounted for by prospective application.
d) are ignored.

Answer: b

20. Which of the following should be given retrospective treatment?

Change in Change from
Estimated Lives Unacceptable Policy
of Depreciable Assets to Acceptable Policy
a) yes yes
b) no yes
c) yes no
d) no no

Answer: b

21. Under IFRS, which of the following disclosures is NOT required for the correction of an accounting
error?
a) the amount of the correction made to each affected financial statement item for each prior period
presented
b) the nature of the error

21-12
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

c) who was responsible for the error

d) the effect of the correction on both basic and diluted earnings per share for each prior period
presented

Answer: c

22. A publicly traded corporation changes from straight-line depreciation to double declining balance.
Management believes that this will result in equally reliable and more relevant information. The
change will be treated as a change in accounting estimate. The entry to record this change should
include a
a) debit to Accumulated Depreciation.
b) credit to Other Comprehensive Income.
c) credit to Deferred Tax Asset.
d) no entry is needed.

Answer: d

23. When a company decides to switch from deferring development costs to expensing them
immediately, this change should probably be treated as a
a) change in accounting policy.
b) change in accounting estimate.
c) prior period adjustment.
d) correction of an error.

Answer: b

Difficulty: Easy
Learning Objective: Identify and differentiate among the types of accounting changes and explain how

21-13
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

to account for them.

Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Comprehension
AACSB: Analytic

24. The service life of a building that has been depreciated for 30 years of an originally estimated 50-
year life (no residual value) has been revised to an estimated remaining life of 10 years. Based on this
information, the accountant should
a) continue to depreciate the building over the original 50-year life.
b) depreciate the remaining book value over the remaining life of the asset.
c) adjust accumulated depreciation to its appropriate balance through net income, based on a 40-year
life, and then depreciate the adjusted book value as though the estimated life had always been 40
years.
d) adjust accumulated depreciation to its appropriate balance through retained earnings, based on a
40-year life, and then depreciate the adjusted book value as though the estimated life had always
been 40 years.

Answer: b

25. Randall Corp. began operations on January 1, 2022, and uses FIFO to cost its inventory.
Management is contemplating a change to the average cost method and is interested in determining
what effect such a change will have on pre-tax income. Accordingly, the following information has
been developed:
Ending Inventory 2022 2023
FIFO $480,000 $540,000
Average cost 400,000 500,000
Pre-tax Income (calculated using FIFO) 750,000 900,000
Based upon the above information, a change to the average cost method in 2023 would result in pre-
tax income for 2023 of
a) $790,000.
b) $860,000.
c) $940,000.
d) $980,000.

Answer: c

21-14
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: $900,000 + [($500,000 – $400,000) – ($540,000 – $480,000)] = $940,000

26. On January 1, 2023, Bluebird Ltd. changed its inventory valuation method from weighted-average
cost to FIFO for financial statement and income tax purposes, to make its reporting as reliable and
more relevant. The change resulted in a $900,000 increase in the beginning inventory at January 1,
2023. Assume a 25% income tax rate. The cumulative effect of this accounting change reported for the
year ended December 31, 2023 is
a) $0.
b) $225,000.
c) $675,000.
d) $900,000.

Answer: c

27. On January 1, 2023, Miner Corp. changed its inventory costing from FIFO to average cost for
financial statement and income tax purposes, to make its reporting as reliable and more relevant. The
change resulted in a $600,000 increase in the beginning inventory at January 1, 2023. Assume a 30%
income tax rate. The cumulative effect of this accounting change should be reported by Chickadee in
its 2023
a) Retained earnings statement as a $420,000 addition to the beginning balance.
b) Income statement as $420,000 other comprehensive income.
c) Retained earnings statement as a $600,000 addition to the beginning balance.
d) Income statement as a $600,000 cumulative effect of accounting change.

Answer: a

Difficulty: Medium

21-15
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: $600,000 × (1 – .3) = $420,000

28. On January 2, 2021, Moose Corp. purchased machinery for $270,000. The entire cost was
incorrectly recorded as an expense. The machinery has a nine-year life and a $18,000 residual value.
Moose uses straight-line depreciation for all its plant assets. The error was not discovered until May 1,
2023, and the appropriate corrections were made. Ignore income tax considerations.
Before the corrections were made, retained earnings was understated by
a) $270,000.
b) $242,000.
c) $214,000.
d) $186,000.

Answer: c

29. On January 2, 2021, Beaver Corp. purchased machinery for $270,000. The entire cost was
incorrectly recorded as an expense. The machinery has a nine-year life and a $18,000 residual value.
Beaver uses straight-line depreciation for all its plant assets. The error was not discovered until May 1,
2023, and the appropriate corrections were made. Ignore income tax considerations.
Beaver’s income statement for the year ended December 31, 2023 would show the cumulative effect
of this error in the amount of
a) $0.
b) $186,000.
c) $214,000.
d) $242,000.

Answer: a

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how

21-16
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

to account for them.

Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: Not booked through I/S, booked through R/E

30. On January 1, 2020, Cumberland Ltd. bought machinery for $750,000. The company used straight-
line depreciation for this machinery, over an estimated useful life of ten years, with no residual value.
At the beginning of 2023, Cumberland decided the estimated useful life of this machinery was only
eight years (from the date of acquisition), still with no residual value. For calendar 2023, the
depreciation expense for this machinery is
a) $75,000.
b) $65,625.
c) $105,000.
d) $93,750.

Answer: c

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: Accumulated depreciation to December 31/22: $750,000 ÷ 10 x 3 = $225,000
new annual expense ($750,000 – $225,000) ÷ (8 – 3) = $525,000 ÷ 5 = $105,000

31. On January 1, 2020, Missoula Corporation bought machinery for $800,000. It used double declining
balance depreciation for this asset, with an estimated life of eight years, and an estimated $200,000
residual value. At the beginning of 2023, Missoula decided to change to the straight-line method of
depreciation for this equipment and treated the change as a change in estimate. For calendar 2023,
the depreciation expense for this machinery is
a) $100,000.
b) $92,500.
c) $75,050.
d) $27,500.

Answer: d

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.

21-17
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Section Reference: Changes in Accounting Policies and Estimates, and Errors

CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: Accumulated depreciation to December 31/22 (DDB):
($800,000 × .25) + ($600,000 × .25) + ($450,000 × .25) = $462,500
new depreciable amount $800,000 – $200,000 – $462,500 = $137,500
new annual expense $137,500 ÷ 5 = $27,500

32. On January 1, 2020, Casino Inc. purchased a machine for $300,000. The machine has an estimated
five-year life, and no residual value. Double declining balance depreciation has been used for financial
statement reporting and CCA for income tax reporting. Effective January 1, 2023, Casino decided to
change to straight-line depreciation for this machine and treated the change as a change in
accounting policy. For calendar 2023, Casino’s pre-tax income before depreciation on this asset is
$250,000. Their income tax rate has been 30% for many years. What net income should Casino report
for calendar 2023?
a) $190,000
b) $171,640
c) $133,000
d) $91,000

Answer: c

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: $300,000 ÷ 5 = $60,000 (annual depreciation using S/L)
($250,000 – $60,000) × (1 – .3) = $133,000

33. Major Corp. purchased a machine on January 1, 2020, for $900,000. The machine is being
depreciated on a straight-line basis, using an estimated useful life of six years and no residual value.
On January 1, 2023, Major determined, because of additional information, that the machine had an
estimated useful life of eight years from the date of acquisition with no residual value. An accounting
change was made in 2023 to reflect this additional information.
Assuming that the direct effects of this change are limited to the effect on depreciation and the related
tax provision, and that the income tax rate for all years since the machine was purchased was 30%,
what should be reported in the income statement for calendar 2023 as the cumulative effect on prior
years of changing the estimated useful life of the machine?
a) $0
b) $60,000

21-18
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

c) $90,000
d) $315,000

Answer: a

34. Minor Corp. purchased a machine on January 1, 2020, for $900,000. The machine is being
depreciated on a straight-line basis, using an estimated useful life of six years and no residual value.
On January 1, 2023, Minor determined, because of additional information, that the machine had an
estimated useful life of eight years from the date of acquisition with no residual value. An accounting
change was made in 2023 to reflect this additional information.
What is the amount of depreciation expense on this machine that should be reported in Major’s
income statement for calendar 2023?
a) $225,000
b) $180,000
c) $112,500
d) $90,000

Answer: d

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: ($900,000 ÷ 6) × 3 = $450,000; $900,000 – $450,000 = $450,000
$450,000 ÷ 5 = $90,000

35. On January 1, 2019, Plover Ltd. purchased a machine for $495,000 and depreciated it using the
straight-line method with an estimated useful life of eight years with no residual value. On January 1,
2022, Plover determined that the machine had a useful life of only six years from the date of
acquisition but will have a residual value of $45,000. An accounting change was made in 2022 to
reflect these additional facts. At December 31, 2023, the accumulated depreciation account for this
machine should have a balance of

21-19
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

a) $273,750.
b) $281,250.
c) $361,875.
d) $375,000.

Answer: c

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: Accumulated depreciation to December 31/22: $495,000 × 3 ÷ 8 = $185,625
new annual rate ($495,000 – $185,625 – $45,000) ÷ 3 = $88,125
Accumulated depreciation at December 31/23 = $185,625 + ($88,125 x 2) = $361,875

36. On January 1, 2020, Wren Corp. purchased a patent for $238,000. The patent is being amortized
straight-line with no residual value over its remaining legal life of 15 years. However, at the beginning
of 2023, Wren determined that the economic benefits of the patent would not last longer than ten
years from the date of acquisition. What amount should be reported in the 2023 of financial position
for the patent, net of accumulated amortization, at December 31, 2023?
a) $142,800
b) $163,200
c) $168,000
d) $174,550

Answer: b

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: Accumulated amortization to December 31/22: $238,000 × 3 ÷ 15 = $47,600
new annual rate [($238,000 – $47,600) ÷ 7] = $27,200
patent at December 31/23 = $238,000 – $47,600 – $27,200 = $163,200

*37. If an error has already counter-balanced itself, and the books have already been closed, which of
the following is required?
a) No journal entry is required.

21-20
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

b) A journal entry into the next period is required.

c) An entry is necessary to adjust the present balance of retained earnings and the other affected
balance sheet account(s).
d) The books must be re-opened and journal entry for the current period should be created.

Answer: a

Difficulty: Easy
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Comprehension
AACSB: Analytic

*38. All of the following involve counterbalancing errors except for the
a) failure to record prepaid expenses.
b) failure to record an asset impairment.
c) understatement of ending inventory.
d) overstatement of purchases.

Answer: b

*39. Counterbalancing errors do NOT include

a) errors that correct themselves in two years.
b) errors that correct themselves in three or more years.
c) an understatement of ending inventory.
d) an overstatement of unearned revenue.

Answer: b

21-21
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

*40. A company using a perpetual inventory system neglected to record a purchase of merchandise on
account at year end. This merchandise was also omitted from the year-end physical count. How will
these errors affect assets, liabilities, and shareholders' equity at year end and net income for the year?
Assets Liabilities Shareholders' Equity Net Income
a) no effect understate overstate overstate
b) no effect overstate understate understate
c) understate understate no effect no effect
d) understate no effect understate understate

Answer: c

*41. MissTake Corp. is a small private corporation that does NOT prepare comparative statements. At
the end of its 2023 fiscal year, it was discovered that the 2022 depreciation expense on its computer
equipment had been incorrectly debited to maintenance expense. How should MissTake deal with
this situation?
a) Prepare an adjusting entry to debit depreciation expense and credit maintenance expense.
b) Prepare an adjusting entry to debit retained earnings and credit maintenance expense.
c) Restate its 2022 financial statements.
d) Ignore it, its is likely immaterial.

Answer: d

*42. On December 31, 2023, the bookkeeper at Thrush Corp. did NOT record special insurance costs
that had been incurred (but NOT yet paid), related to a building that Thrush Corp. is constructing.
What is the effect of the omission on accrued liabilities and retained earnings in the December 31,
2023 statement of financial position?
Accrued Liabilities Retained Earnings
a) no effect no effect
b) no effect overstated

21-22
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

c) understated no effect
d) understated overstated

Answer: c

*43. Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $1,500 understated $2,200 overstated
Depreciation expense $400 understated
An insurance premium of $3,600 was prepaid in 2022 covering the calendar years 2022, 2023, and
2024. This had been debited to insurance expense. In addition, on December 31, 2023, fully
depreciated machinery was sold for $1,900 cash, but the sale was NOT recorded until 2024. There
were no other errors during 2023 or 2024 and no corrections have been made for any of the errors.
Ignore income tax considerations.
What is the total net effect of the errors on Cheyenne’s 2023 net income?
a) Net income understated by $2,900
b) Net income overstated by $1,500
c) Net income overstated by $2,600
d) Net income overstated by $3,000

Answer: d

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Analysis
AACSB: Analytic
Feedback: $1,500 (o) + $2,200 (o) + $1,200 (o) – $1,900 (u) = $3,000 (o)

*44. Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $1,500 understated $2,200 overstated
Depreciation expense $400 understated
An insurance premium of $3,600 was prepaid in 2022 covering the calendar years 2022, 2023, and
2024. This had been debited to insurance expense. In addition, on December 31, 2023, fully
depreciated machinery was sold for $1,900 cash, but the sale was NOT recorded until 2024. There
21-23
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

were no other errors during 2023 or 2024 and no corrections have been made for any of the errors.
Ignore income tax considerations.
What is the total net effect of the errors on the amount of Cheyenne's working capital at December 31,
2023?
a) Working capital overstated by $1,000
b) Working capital overstated by $300
c) Working capital understated by $900
d) Working capital understated by $2,400

Answer: c

*45. Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $1,500 understated $2,200 overstated
Depreciation expense $400 understated
An insurance premium of $3,600 was prepaid in 2022 covering the calendar years 2022, 2023, and
2024. This had been debited to insurance expense. In addition, on December 31, 2023, fully
depreciated machinery was sold for $1,900 cash, but the sale was NOT recorded until 2024. There
were no other errors during 2023 or 2024 and no corrections have been made for any of the errors.
Ignore income tax considerations.
What is the total effect of the errors on the balance of Cheyenne's retained earnings at December 31,
2023?
a) Retained earnings understated by $2,000
b) Retained earnings understated by $900
c) Retained earnings understated by $500
d) Retained earnings overstated by $700

Answer: c

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Analysis
AACSB: Analytic
Feedback: $400 (o) + $2,200 (o) – $1,200 (u) – $1,900 (u) = $500 (u)

21-24
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

*46. At December 31, 2023, Grant Corp.’s auditor discovered the following errors:
1. Accrued salaries payable of $11,000 were NOT recorded at December 31, 2022.
2. Office supplies on hand of $5,000 at December 31, 2023 had been treated as expense instead
of supplies inventory.
Neither of these errors was discovered nor corrected. The effect of these two errors would cause
a) 2023 net income to be understated $16,000 and December 31, 2023 retained earnings to be
understated $5,000.
b) 2022 net income and December 31, 2022 retained earnings to be understated $11,000 each.
c) 2022 net income to be overstated $6,000 and 2023 net income to be understated $5,000.
d) 2023 net income and December 31, 2023 retained earnings to be understated $5,000 each.

Answer: a

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Analysis
AACSB: Analytic
Feedback: 2023 NI = $11,000 (u) + $5,000 (u) = $16,000 (u)
2023 RE = $5,000 (u)
The $11,000(o) from 2022 is offset by the $11,000(u) in 2023

*47. Fairfax Inc. began operations on January 1, 2022. Financial statements for 2022 and 2023
contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $33,000 too high $39,000 too low
Depreciation expense 21,000 too high —
Insurance expense 15,000 too low 15,000 too high
Prepaid insurance 15,000 too high —
In addition, on December 31, 2023 fully depreciated equipment was sold for $7,200, but the sale was
NOT recorded until 2024. No corrections have been made for any of the errors. Ignore income tax
considerations.
The total effect of the errors on Fairfax's 2023 net income is
a) understated by $94,200.
b) understated by $61,200.
c) overstated by $28,800.
d) overstated by $49,800.

Answer: a

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
21-25
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

CPA: Financial Reporting

Bloomcode: Analysis
AACSB: Analytic
Feedback: $33,000 (u) + $39,000 (u) + $15,000 (u) + $7,200 (u) = $94,200 (u)

*48. Fairfax Inc. began operations on January 1, 2022. Financial statements for 2022 and 2023
contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $33,000 too high $39,000 too low
Depreciation expense 21,000 too high —
Insurance expense 15,000 too low 15,000 too high
Prepaid insurance 15,000 too high —
In addition, on December 31, 2023 fully depreciated equipment was sold for $7,200, but the sale was
NOT recorded until 2024. No corrections have been made for any of the errors. Ignore income tax
considerations.
The total effect of the errors on Fairfax's retained earnings at December 31, 2023 is that the balance is
understated by
a) $82,200.
b) $67,200.
c) $46,200.
d) $34,200.

Answer: b

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Analysis
AACSB: Analytic
Feedback: $39,000 (u) + $21,000 (u) – $15,000 (o) + $15,000 (u) + $7,200 (u) = $67,200 (u)

*49. Fairfax Inc. began operations on January 1, 2022. Financial statements for 2022 and 2023
contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $33,000 too high $39,000 too low
Depreciation expense 21,000 too high —
Insurance expense 15,000 too low 15,000 too high
Prepaid insurance 15,000 too high —
In addition, on December 31, 2023 fully depreciated equipment was sold for $7,200, but the sale was
NOT recorded until 2024. No corrections have been made for any of the errors. Ignore income tax
considerations.
The total effect of the errors on Fairfax's working capital at December 31, 2023 is that working capital
is understated by
21-26
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

a) $100,200.
b) $79,200.
c) $46,200.
d) $31,200.

Answer: c

*50. Eagle Corp. is a calendar-year corporation whose financial statements for 2022 and 2023 included
errors as follows:
Year Ending Inventory Depreciation Expense
2022 $36,000 overstated $30,000 overstated
2023 12,000 understated 10,000 understated
Assume that purchases were recorded correctly and that no correcting entries were made at
December 31, 2022 or December 31, 2023. Ignoring income taxes, by how much should Eagle's
retained earnings be retrospectively adjusted at January 1, 2024?
a) $32,000 increase
b) $8,000 increase
c) $4,000 decrease
d) $2,000 increase

Answer: a

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: $12,000 (u) + $30,000 (u) – $10,000 (o) = $32,000 (u)

*51. On January 1, 2022, Condor Corp. acquired a machine for $200,000. It is to be depreciated straight
line over five years, with no residual value. As a result of a bookkeeping error, no depreciation was
recognized in Condor's 2022 financial statements. The oversight was discovered during the
preparation of Condor's 2023 financial statements. Depreciation expense on this machine for 2023
should be
a) $0.

21-27
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

b) $40,000.
c) $50,000.
d) $80,000.

Answer: b

Difficulty: Medium
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
Feedback: $200,000 ÷ 5 = $40,000

21-28
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

EXERCISES

Ex. 21-52 Conditions and disclosures for a change in accounting policy under IFRS and ASPE
Able Enterprises is a large consumable distributor. The company has been using the weighted average
method for its inventory valuation but would like to move to using FIFO. The company is publicly
traded.

Instructions
a) Under what conditions would it be acceptable for Able to move from using the weighted average
method to FIFO? Under what situations can a company reporting under IFRS make changes to its
accounting policy?
b) Would your answer in part a change if the company adhered to ASPE rather than IFRS? Explain
under what situations a change policy could be made under ASPE.
c) Critical Thinking: As the CFO you have informed your accounting team that if management
makes the change to FIFO that they will be possible for ensuring that the correct disclosures are
made. A new junior accountant is confused by this. Explain the main objectives of accounting and
disclosure standards for accounting changes.

Solution 21-52
a) Under IFRS, there are only two situations where a change in accounting policy is acceptable:
1. The change is required by a primary source of GAAP.
2. A voluntary change results in the information in the financial statements being as reliable
and more relevant.

b) Voluntary changes are allowed under ASPE without having to meet the “reliable and more relevant”
criterion. These include accounting and reporting
1. for investments in subsidiary companies, and in companies where the investor has
significant influence or joint control.
2. for expenditures during the development phase on internally generated intangible assets.
3. for defined benefit plans.
4. for accounting for income taxes.
5. for measuring the equity component of a compound financial instrument.

c) CRITICAL THINKING: The three main objectives of accounting and disclosure standards for
accounting changes include:
1. Limiting the types of changes permitted.
2. Standardizing the reporting for each type of change.
3. Ensuring that readers of accounting reports have the necessary information to understand
the effects of such changes on the financial statements.

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.

21-29
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Section Reference: Changes in Accounting Policies and Estimates, and Errors

CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic

Ex. 21-53 Matching accounting changes to situations

The three types of accounting changes are:
Code
a) Change in accounting policy
b) Change in accounting estimate
c) Error correction

Instructions
Following are a series of situations. You are to enter a code letter to the left to indicate the type of
change.
______ 1. Change due to debiting a new asset to an expense account.
______ 2. Change from FIFO to weighted average costing.
______ 3. Change due to failure to recognize unearned portion of revenue.
______ 4. Change in amortization period for an intangible asset.
______ 5 Change in the calculation of warranty liabilities.
______ 6. Change due to failure to recognize and accrue income.
______ 7. Change in residual value of a depreciable plant asset.
______ 8. Change from an unacceptable accounting policy to an acceptable accounting
policy.
______ 9. Adoption of a new accounting standard.
______ 10. Change due to expensing prepaid assets.
______ 11. Change from straight-line to double declining-balance method of depreciation.
______ 12. Change in estimated service life of a depreciable plant asset.
______ 13. Change from one acceptable policy to another acceptable policy.
______ 14. Change due to understatement of inventory.
______ 15. Change in estimated net realizable value of accounts receivable.

Solution 21-53
1. c

2. a

3. c

4. b

5. b

21-30
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

6. c

7. b

8. c

9. a

10. c

11. b

12. b

13. a

14. c

15. b

Ex. 21-54 Matching disclosures to situations

In the blank to the left of each statement, fill in the letter from the following list which best describes
the treatment of the item on the financial statements of Sora Inc. for the current year ending
December 31, 2023:
a) Change in accounting policy requiring retrospective application
b) Change in estimate
c) Correction of error
d) None of the above

_____ 1. In 2023, the company changed its method of recognizing income from the completed-
contract method to the percentage-of-completion method.
_____ 2. At the end of 2023, an audit revealed that the corporation's allowance for doubtful
accounts was too large and should be reduced to 2%. When the audit was performed in
2022, the allowance seemed appropriate.
_____ 3. Depreciation on a truck, acquired in 2019, was understated because the service life had
been overestimated. The understatement had been made in order to show higher net

21-31
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

income in 2020 and 2021.

_____ 4. The company switched from average cost to FIFO inventory costing during the current
year.
_____ 5. In 2023, Sora introduced a new pension plan for its employees, which included past
service costs of $50,000. It decided to recognize the $50,000 as part of its 2023 pension
expense.
_____ 6. During 2023, 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 Canada Revenue Agency, income taxes owing for 2022 were
established at $42,900. They were originally estimated to be $28,600.
_____ 8. In 2023, the company incurred interest expense of $29,000 on a 20-year bond issue.
_____ 9. In calculating the depreciation in 2021 for buildings, an error was made which
overstated income in that year by $75,000. The error was discovered in 2023.
_____ 10. In 2023, the company changed its method of depreciating plant assets from the double
declining-balance method to the straight-line method.

Solution 21-54
1. a

2. b

3. c

4. a

5. d

6. d

7. b

8. d

9. c

10. b

21-32
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Ex. 21-55 Change in estimate, voluntary change in accounting policy, correction of errors
As part of Zip Transports loan covenants, the company must provide its accountant prepared financial
statements to its banker on an annual basis. The bank will then conduct a financial analysis of the
statements to assess overall company stability and ensure that ZIP is in compliance with the
covenants. The bank notices that there appears to significant changes to Zip’s accounting policies and
disclosures. The bank contacts Zip’s CFO asking for a detailed explanation of these changes.

Instructions
a) Provide the bank with a detailed report and examples of each of the following:
1. Change in estimate
2. Voluntary change in accounting policy
3. Correction of an error
Make sure to address any differences in reporting under IFRS versus ASPE in your explanation.
b) CRITICAL THINKING: Why do you think the banker ask for a detailed explanation of the
changes? What challenges is the banker experiencing in conducting the annual review?

Solution 21-55
a)
1. Changes in Estimate
Accounting estimates will change as new events occur, as more experience is acquired, or new
information is obtained. Changes in estimates are handled prospectively; that is in current and future
periods. No restatement of previous financial statements is made. Financial statement disclosure
includes the nature and amount of the change for the current period under ASPE and future periods
under IFRS unless it is impracticable to estimate its affect. Immaterial changes in estimates do not
need to be disclosed. Examples include:
- collectability of receivables
- change in depreciation methods
- estimated lives or residual values
- warranty costs

2. Voluntary Changes in Accounting Policy

The financial statements need to be adjusted to reflect the change in all of the prior years presented,
the current year, and the cumulative effect of the change on prior periods, net of tax, should be shown
as an adjustment to beginning retained earnings in the current year. Disclosure should include the
amount of the adjustment for the current period and each prior period presented, including the effect
on each financial statement line item and the per share amounts, the amount of the adjustment
related to periods prior to those presented, either that the change has been applied retrospectively, or
without restatement and an explanation why this was impractical, and justification of the change.
Examples include: - change in the basis of inventory pricing
- change in the method of accounting for construction contracts
- change in the method of accounting for instalment sales
- change in the method of accounting for defined pension plans

3. Correction of an Error

21-33
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Corrections of errors are recorded in the year discovered, are corrected retrospectively with
restatement of all prior years presented, and the beginning balance of retained earnings is adjusted.
The nature of the error, the amount of the correction for each prior period presented, and the amount
related to periods prior to those presented, and that the comparative information has been restated,
must all be disclosed. Examples include:
- a change from an accounting policy that is not generally accepted to an accounting policy that is
accepted
- mathematical mistakes
- changes in estimates that occur because the estimates are not made in good faith
- an oversight
- a misuse of facts
- misclassification of an asset as an expense or vice versa

b) CRITICAL THINKING:
Accounting changes often make it difficult to develop meaningful trend data, which would undermine
one of the major reasons why the accounting information was useful in the past. Financial statement
readers should look closely at all accounting changes and adjust any trend data appropriately.
Although most adjustments result in no change in the company’s cash position, some adjustments
can end up converting previously reported operating cash flows to investing or financing flows. Most
changes tend to shift earnings from one accounting period to another. The disclosures required by the
accounting standards are the best source of input for the analysis.

Ex. 21-56 Recognition of accounting changes or corrections

Meck Pharmaceuticals new CFO who has been reviewing the company’s past financial statements and
its current accounting policies. Based on his analysis, the accounting team has been instructed to
make the following changes:
1. Change from straight-line method of depreciation to double declining balance method
2. Change from the cash basis to the accrual basis of accounting
3. Change from FIFO to weighted average cost method for inventory valuation purposes
4. Change due to failure to record depreciation in a previous period
5. Change in the net realizable value of certain receivables

Instructions
For each of the items above, indicate the type of accounting change the accounting team has been
instructed to make and how each is recognized in the accounting records for the current year.

Solution 21-56
1. Change in accounting estimate; prospective application for current and future periods only.

2. Correction of an error; retrospective treatment; restatement of financial statements of all prior

periods presented; adjustment of beginning retained earnings of the current period. If
restatement is not practical, restatement may be omitted.

3. Change in accounting policy; retrospective treatment; adjustment of beginning retained

earnings, restatement of financial statements of all prior periods presented. If restatement is not
practical, restatement may be omitted.

4. Correction of an error; restatement of financial statements of the period affected; adjustment of

beginning retained earnings of the first period after the error.

5. Change in accounting estimate; prospective application for current and future periods only.

Ex. 21-57 Effects of errors on financial statements

Show how the following independent errors will affect net income on the income statement and the
shareholders' equity section of the statement of financial position (SFP) using the symbol + (plus) for
overstated, – (minus) for understated, and 0 (zero) for no effect.
2022 2023
Income SFP Income SFP
Statement Statement
1. Ending 2022 inventory overstated
2. Failure to accrue 2022 interest revenue
3. A capital expenditure for factory
equipment (useful life, 5 years) was
charged to expense in error in 2022
4. Failure to accrue 2022 wages
5. Ending inventory in 2022 understated
6. Overstated 2022 depreciation expense;
2023 expense correct

Solution 21-57
2022 2023
Income Income
Statement SFP Statement SFP
21-35
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

1. Ending 2022 inventory overstated.

+ + – 0
2. Failure to accrue 2022 interest – – + 0
revenue.
_ _ + _
3. A capital expenditure for factory
equipment (useful life, 5 years) was
charged to expense in 2022.
+ + – 0
4. Failure to accrue 2022 wages.
– – + 0
5. Ending inventory in 2022 understated.
– – 0 –
6. Overstated 2022 depreciation
expense; 2023 expense correct.

Ex. 21-58 Effects of errors on net income

Hummingbird Corp. began operations on January 1, 2022. Financial statements for 2022 and 2023
contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $20,000 too high $35,000 too high
Depreciation expense 16,000 too low —
Accumulated depreciation 16,000 too low 16,000 too low
Insurance expense 14,000 too high 10,000 too low
Prepaid insurance 14,000 too low 4,000 too low

In addition, on December 26, 2023, fully depreciated equipment was sold for $19,000, but the sale was
NOT recorded until 2024. No corrections have been made for any of the errors.

Instructions
a) Ignoring income tax, show your calculation of the total effect of the errors on 2023 net income.
b) CRITICAL THINKING: How do these types of errors get corrected on the financial statements?
Within your explanation include a discussion on how a retrospective application for accounting
changes is applied.

Solution 21-58
21-36
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

2022 ending inventory.......................................................... $(20,000)

2023 ending inventory.......................................................... 35,000
Insurance expense................................................................ 10,000
Unrecorded gain................................................................... (19,000)
Overstatement of 2023 income............................................ $ 6,000

Note: The error in depreciation expense has no effect on 2023 income. The error in prepaid insurance
is related to the error in insurance expense.

b) CRITICAL THINKING: The general requirement for changes in accounting policy and the required
method for error correction is that the change’s cumulative effect be shown as an adjustment to the
beginning retained earnings. Income statements of the affected prior periods presented for
comparison purposes are restated to show, on a retrospective basis, the effects of the new accounting
policy. When historical summaries are reported, the adjustments are reported in each prior year
affected. When the effects on particular prior periods of a change in accounting policy is impractical to
determine, the cumulative effect of the change (net of tax) is shown as an adjustment to the beginning
retained earnings. Comparative financial statements of prior periods presented for comparison are
not restated.

Ex. 21-59 Factors in choosing accounting methods and procedures

Max Systems is a new technology start-up. The company is currently in the process of incorporating
and choosing appropriate accounting policies for this firm. The management team wants to make
sure it understands the economic consequences of the policys the company chooses.

Instructions
a) Explain what management means when it uses the term “economic consequences”.
b) Identify and provide a detailed explanation of the four economic factors as discussed in the
textbook that the management team of Max Systems may wish to consider when choosing the
company’s accounting policies.

Solution 21-59
a) Management pays careful attention to the accounting methods it follows and often changes
accounting methods not for conceptual reasons but rather for economic reasons. As indicated
throughout this textbook, such arguments have come to be known as economic consequences
arguments, since they focus on the supposed impact of accounting on the behaviour of investors,
creditors, competitors, governments, and the managers of the reporting companies themselves,
rather than addressing the conceptual justification for accounting standards.
21-37
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

b) Research has shown that choices of accounting policies often have economic consequences for
business organizations. As a result, management may choose accounting policies based on the
expected economic impact of the policy. Some of these reasons are political costs, capital structure,
bonus payments, and smoothing of earnings. Each of these is explained in more detail below:
1. Political costs: The larger the firm, the more likely it is to become subject to legislation such as
anti-competition regulations and the more likely it is to be required to pay higher taxes.
Therefore, companies that are politically visible may try to report income numbers that are low in
order to avoid the scrutiny of regulators.
2. Capital structure: Several studies have found that a company’s capital structure can affect the
selection of accounting methods. For example, a company with a high debt-to-equity ratio is
more likely to be constrained by debt covenants. A company may be considered in default on its
bonds if the debt-to-equity ratio is too high. As a result, this type of company is more likely to
select accounting methods that will increase net income—such as capitalizing interest instead of
expensing it, or using the full cost method instead of the successful efforts approach for
exploration and development costs in the oil and gas industry.
3. Bonus payments: Studies have found that if compensation plans tie managers’ bonus payments
to income, management may select accounting methods that maximize bonus payments.
4. Smooth earnings: Substantial increases in earnings attract the attention of politicians,
regulators, and competitors. In addition, large increases in income create problems for
management because the same results are difficult to achieve in subsequent years.
Compensation plans may adjust to these higher numbers as a baseline and make it difficult for
management to achieve its profit goals and receive bonuses in the following years. On the other
hand, decreases in earnings might signal that the company is in financial trouble. Furthermore,
significant changes in income raise concerns on the part of shareholders, lenders, and other
interested parties about the riskiness of the company. For all these reasons, companies have an
incentive to “manage” or “smooth” their earnings.

Difficulty: Easy
Learning Objective: Identify economic motives for changing accounting methods and interpret
financial statements where there have been retrospective changes to previously reported results.
Section Reference: Analysis
CPA: Communication
CPA: Financial Reporting
Bloomcode: Comprehension
AACSB: Communication

Ex. 21-60 IASB and accounting policies and estimates

As part of its disclosure initiative, why is the IASB looking at the definitions of accounting policies and
accounting estimates?

Solution 21-60
The IASB is looking at the definitions of accounting policies and accounting estimates as some
preparers and users feel that the definitions currently provided in IFRS are not sufficiently detailed or
informative. What is the issue? As noted in the chapter, accountants are increasingly called to deal

with measurement uncertainty and must continually estimate and re-estimate many financial
statement elements. If we look at recently issued IFRS, we can see that, as new standards are issued
or old standards revised, the IASB is including additional guidance regarding tools and techniques to
measure and deal with estimation uncertainty. Therefore, as the amount of guidance increases
(including specific methods to estimate amounts), the act of estimating becomes in many ways more
complex and companies must carefully consider which methodologies should be used to measure
things and how they should be applied. Thus the line between changes in accounting policies and
changes in estimates is becoming more blurred.

Difficulty: Easy
Learning Objective: Identify differences in accounting between IFRS and APSE.
Section Reference: IFRS/ASPE Comparison
CPA: Communication
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Communication

*Ex.21–61 Error corrections

TokTik Inc.'s December 31 year-end financial statements contained the following errors:
Dec. 31, 2022 Dec. 31, 2023
Ending inventory $1,800 overstated $2,100 understated
Depreciation expense $200 understated

An insurance policy of $4,500 was prepaid in 2022 covering the calendar years 2022, 2023, and 2024
but had been debited to insurance expense. On December 31, 2023, fully depreciated equipment was
sold for $2,500 cash, but the sale was NOT recorded until 2024. There were no other errors during this
period and no corrections have been made.

Instructions
a) Calculate the net effect of the errors on TokTik’s 2023 net income.
b) Calculate the total effect of the errors on the balance of TokTik’s retained earnings at December
31, 2023.
c) Calculate the net effect of the errors on TokTik’s working capital at December 31, 2023.

*Solution 21-61
a) $1,800 understated + $2,100 understated – $1,500* overstated + $2,500 understated = $4,900
understated

b) $2,100 understated + $1,500* understated + $2,500 understated – $200 overstated = $5,900

understated

c) $2,100 understated + $1,500* understated + $2,500 Understated = $6,100 understated

*$4,500 ÷ 3 = $1,500

*Ex. 21-62 Non-counterbalancing error correction

Turkey Corp. bought a machine on January 3, 2021 for $275,000. It had a $15,000 estimated residual
value and a ten-year life. The corporation uses straight-line depreciation. An expense account was
debited in error on the purchase date, but this was NOT discovered until late 2023.

Instructions
Prepare the correcting entry or entries related to the machine for 2023. Ignore income tax effects.

*Solution 21-62
Annual depreciation is ($275,000 – $15,000) ÷ 10 = $26,000

Machinery.................................................................................................. 275,000
Retained Earnings................................................................................ 223,000
Accumulated Depreciation—Machinery (2 × $26,000)....................... 52,000

Depreciation Expense............................................................................... 26,000

Accumulated Depreciation—Machinery............................................. 26,000

PROBLEMS

Pr. 21-63 Correction of errors in prior years

Goldfinch Inc. reported net incomes for the last three years as follows:

2021, $62,000; 2022, $63,000; 2023, $60,000

In reviewing the accounts in 2024 (after the books for the prior year had been closed), you find that the
following errors have been made:
2021 2022 2023
Overstatement of ending inventory.......................................... $7,000 $8,500 $4,000
Understatement of accrued advertising expense.................... 1,100 2,000 1,200

Instructions
a) Calculate corrected net incomes for 2021, 2022, and 2023.
b) Prepare the entry required in 2024 to correct the books. Ignore income taxes.
Show any calculations.

Solution 21-63
a) 2021 2022 2023
Net income (unadjusted) $62,000 $63,000 $60,000
Overstatement of ending inventory—2021 (7,000) 7,000
Overstatement of ending inventory—2022 (8,500) 8,500
Overstatement of ending inventory—2023 (4,000)
Understatement of accrued advertising expense—2021 (1,100) 1,100
Understatement of accrued advertising expense—2022 (2,000) 2,000
Understatement of accrued advertising expense—2023 _________ _________ (1,200)
Net income (corrected) $53,900 $60,600 $65,300

b) Retained Earnings..................................................................................... 5,200

Advertising Expense.......................................................................... 1,200
Inventory............................................................................................ 4,000

Pr. 21-64 Accounting for accounting changes and error corrections

Parrot Corp. reported net incomes for the last three years as follows:

2023 2022 2021

$240,000 $225,000 $180,000
During the 2023 year-end audit, the following items come to your attention:
1. Parrot bought a truck on January 1, 2020 for $98,000 cash, with an $8,000 estimated residual
value and a six-year life. The company debited an expense account for the entire cost of the asset.
Parrot uses straight-line depreciation for all trucks.
2. During 2023, Parrot changed from straight-line depreciation for its cement plant to double
declining balance. The following calculations present depreciation on both bases:
2023 2022 2021
Straight-line $18,000 $18,000 $18,000
Double declining balance 23,100 30,000 36,000
The net income for 2023 was calculated using the double declining balance method.
3. In reviewing its provision for uncollectible accounts during 2023, the corporation has determined
that 1% is the appropriate amount of bad debt expense to be charged to operations. The
company had used 1/2 of 1% as its rate in 2022 and 2021 when the expense had been $9,000 and
$6,000, respectively. Parrot recorded bad debt expense using the new rate for 2023. If they had
used the old rate, they would have recorded $3,000 less bad debt expense on December 31, 2023.

Instructions (Ignore all income tax effects)

a) Prepare the general journal entry required to correct the books for the item 1 situation (only) of
this problem, assuming that the books have not been closed for 2023.
b) Present comparative income statement data for the years 2021 to 2023, starting with income
before the cumulative effect of any accounting changes.
c) Assume that the beginning retained earnings balance (unadjusted) for 2021 was $630,000. At
what adjusted amount should the beginning retained earnings balance for 2021 be shown,
assuming that comparative financial statements were prepared?
d) Assume that the beginning retained earnings balance (unadjusted) for 2023 is $900,000 and that
comparative financial statements are not prepared. At what adjusted amount should this
beginning retained earnings balance be shown?

Solution 21-64
Annual depreciation would be ($98,000 – $8,000) ÷ 6 = $15,000

a) Vehicles...................................................................................................... 98,000
Depreciation Expense (2023 only)............................................................ 15,000
Accumulated Depreciation—Vehicles (4 years, 2020–2023)............ 60,000
Retained Earnings............................................................................. 53,000

b) 2023 2022 2021

Income before cumulative effect of
of error correction $240,000 $225,000 $180,000
Depreciation of truck (15,000) (15,000) (15,000)
$225,000 $210,000 $165,000

Note items 2 and 3 are considered changes in estimates, and are accounted for prospectively.

c) Retained earnings (unadjusted).......................................................... $630,000

Correction of 2020 error ($98,000 – $15,000)...................................... 83,000
Retained earnings (adjusted).............................................................. $713,000

d) Retained earnings (unadjusted).......................................................... $900,000

Correction of error ($98,000 – $45,000)............................................... 53,000
Retained earnings (adjusted).............................................................. $953,000

Pr.21-65 Changes in estimates

Green Home Automation (GHA) Inc. is a publicly traded company that designs and manufactures
environmentally-friendly windows. The high-tech windows have the ability to both cool homes in the
summer and warm them in the winter. The company owns the following assets:
1. Manufacturing equipment that was purchased for $495,000 on August 1, 2019. The equipment
was estimated to have a useful life of 10 years with no residual value.
2. A patent for the heating / cooling technology that was purchased for $315,000 on August 1,
2019. The patent is estimated to have a remaining legal life of 12 years with no residual value.

GHA has a fiscal year end of July 31 and uses straight-line depreciation. On August 1, 2022, GHA
determines that the equipment actually only has a 7-year useful life from the acquisition date, but
with a residual value of $25,000. In addition, the economic benefits of the patent were determined to
only last 6 years from the acquisition date.

Instructions
a) Calculate the depreciation expense for each asset for 2023.
b) Calculate the balance in the accumulated depreciation account for each asset on July 31, 2023.
c) Calculate the net amount to be reported in the 2023 of financial position for each of these assets
at July 31, 2023.

Solution 21-65
Manufacturing Equipment:
Accumulated depreciation to July 31/22: $495,000 ÷ 10 × 3 = $148,500
a) 2022 depreciation expense: ($495,000 – $148,500 – $25,000) ÷ 4 = $80,375
b) Accumulated depreciation at July 31/23: $148,500 + $80,375 = $228,875
c) Equipment net value at July 31/23: $495,000 – $228,875 = $266,125

Patent:
21-43
Copyright © 2022 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

Accumulated amortization to July 31/22: $315,000 ÷ 12 × 3 = $78,750

a) 2022 amortization expense: [($315,000 – $78,750) ÷ 3] = $78,750
b) Accumulated amortization – patents: $78,750 + $78,750 = $157,500
c) Patent net book value at July 31/23: $315,000 – $157,500 = $157,500

Pr. 21-66 Accounting policies under IFRS and ASPE

Explain how management should apply accounting policies under IFRS and ASPE when there is no
specific IFRS or primary source of GAAP to refer.

Solution 21-66
Under IFRS, accounting policies applied are determined by applying the IFRS. If there is no specific
IFRS that applies, management applies judgement in determining a policy that is relevant to the
needs of users and is reliable. Judgement considers first the requirements of IFRS in similar situations,
and then the definitions, recognition criteria, and elements in the Framework for the Preparation and
Presentation of Financial Statements.

Under ASPE, if not dealt with in a primary source or if additional guidance is needed, management
uses policies consistent with the primary sources, and that are developed using professional
judgement and the concepts in Section 1000.

*Pr. 21-67 Error corrections and adjustments

The controller for Stork Corp. is concerned about certain business transactions that the company
experienced during 2023. The controller, after discussing these matters with various individuals, has
come to you as the CFO for advice. Stork follows ASPE. The transactions at issue are presented below:
1. The company has decided to switch from the direct write-off method for accounting for bad
debts to the percentage-of-sales approach. Assume that Stork has recognized bad debt expense
as the receivables have actually become uncollectible in the following way:
2022 2023

From 2022 sales 10,600 4,000

From 2023 sales 15,000
The controller estimates that an additional $21,800 in bad debts will be written off in 2024: $3,800
applicable to 2022 sales and $18,000 to 2023 sales.
2. Inventory has been shipped on consignment. These transactions have been recorded as ordinary
sales and billed as such (on account). At December 31, 2023, inventory billed and in the hands of
consignees amounted to $160,000. The percentage markup on selling price is 20%. Assume that
the consigned inventory is sold the following year. The company uses the perpetual inventory
system.
3. During 2023, Stork sold $300,000 worth of goods on the instalment basis. The cost of sales
associated with these instalment sales is $225,000. The company inadvertently handled these
sales and related costs as part of their regular sales transactions. Cash of $86,000, including a
down payment of $30,000, was collected on these instalment sales during 2023. Due to
questionable collectability, the instalment method was considered appropriate.

Instructions
a) Assume that Stork Corp. reported pre-tax income of $500,000 for 2023. Present a schedule
showing the corrected pre-tax income after the above transactions are taken into account. Ignore
income tax effects.
b) Prepare the correcting journal entries required at December 31, 2023, assuming that the books
have been closed.
c) CRITICAL THINKING: The CEO of Stork Corp. is reviewing the controller’s work. She is unclear
why the reported pre-tax income is now lower than it was prior to these adjustments. She asks
you why this occurred and for of a comprehensive explanation regard how and when accounting
changes are made. Provide her with this information.

*Solution 21-67
a) Reported net income................................................................................ $500,000
1. Additional charge for bad debts
2022 debts written off in 2023 (add back)........................................ $ 4,000
2023 debts to be written off in 2024 (deduct).................................. (18,000) (14,000)

2. Consignment (20% × $160,000)........................................................ (32,000)

3. Gross profit—Recognized.................................................................. 75,000

Should be 25% × $86,000........................................................... (21,500) (53,500)
Corrected income...................................................................................... $400,500

b) 1. Retained Earnings............................................................................. 21,800

Allowance for Doubtful Accounts.............................................. 21,800

2. Consignment Inventory..................................................................... 128,000

Retained Earnings............................................................................. 32,000
Accounts Receivable.................................................................. 160,000

3. Retained Earnings............................................................................. 53,500

Deferred Gross Profit................................................................. 53,500

c) CRITICAL THINKING: In this case Stork made an adjustment to its accounting policies and there
was a change in estimates. Accounting changes may result for any of the following reasons:
1. A change in accounting policy. Changes in the choice of “specific principles, bases, conventions,
rules, and practices applied by an entity in preparing and presenting financial statements” are
all changes in accounting policies. The initial adoption of a new accounting standard and a
change from a weighted average cost flow formula to one based on FIFO (as long as this results
in reliable and more relevant information) are both examples of a change in policy.
2. A change in accounting estimate. A change in an accounting estimate is an adjustment to the
carrying amount of an asset or a liability or the amount of an asset’s periodic consumption, and
results from an assessment of the present status of or the expected future benefits and
obligations associated with an asset or liability. Examples include a change in the estimate of
the service life of an asset that is subject to depreciation, and a change in the estimate of the net
realizable value of accounts receivable.
3. Correction of a prior period error. Prior period errors are omissions from or mistakes in the
financial statements of one or more prior periods that are caused by the misuse of, or failure to
use, reliable information that existed when those financial statements were completed and
could reasonably have been found and used in their preparation and presentation. An example
is the failure to recognize depreciation on a group of capital assets that were used in operations
for a specific prior period.

Difficulty: Medium
Learning Objective: Identify and differentiate among the types of accounting changes and explain how
to account for them.
Section Reference: Changes in Accounting Policies and Estimates, and Errors
Learning Objective: Correct the effects of errors and prepare restated financial statements.
Section Reference: Appendix 21A: Error Analysis
CPA: Financial Reporting
Bloomcode: Analysis
AACSB: Analytic

LEGAL NOTICE

The data contained in these files are protected by copyright. This manual is furnished under licence
and may be used only in accordance with the terms of such licence.

The material provided herein may not be downloaded, reproduced, stored in a retrieval system,
modified, made available on a network, used to create derivative works, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the
prior written permission of John Wiley & Sons Canada, Ltd.

TB 21
100% (1)
TB 21
37 pages
IAS 8 - Revision Lecture Notes and Examples
No ratings yet
IAS 8 - Revision Lecture Notes and Examples
19 pages
Chapter 7 - Gripping IFRS ICAP 2008 (Solution of Graded Questions)
100% (2)
Chapter 7 - Gripping IFRS ICAP 2008 (Solution of Graded Questions)
49 pages
IAS 8: Accounting Policy Changes Guide
No ratings yet
IAS 8: Accounting Policy Changes Guide
18 pages
2021 06 IAS 8 Snapshot
No ratings yet
2021 06 IAS 8 Snapshot
1 page
Chapter 21 Accounting Changes
100% (1)
Chapter 21 Accounting Changes
35 pages
Correction of Error and Single Entry
No ratings yet
Correction of Error and Single Entry
10 pages
Class 1 and 2 Chapter 3. Reporting Financial Performance
No ratings yet
Class 1 and 2 Chapter 3. Reporting Financial Performance
64 pages
Ias 8
No ratings yet
Ias 8
9 pages
Accounting Policy and Estimate
100% (1)
Accounting Policy and Estimate
5 pages
Ias8 PDF
No ratings yet
Ias8 PDF
3 pages
Chapter 21
No ratings yet
Chapter 21
56 pages
IAS 8: Accounting Policies & Errors
No ratings yet
IAS 8: Accounting Policies & Errors
3 pages
IAS 8 - Changes Estimate, Policy and Errors
No ratings yet
IAS 8 - Changes Estimate, Policy and Errors
3 pages
1.0 Pas 8 Lecture Notes
No ratings yet
1.0 Pas 8 Lecture Notes
5 pages
10accounting Changes
100% (1)
10accounting Changes
31 pages
Accounting Estimates
No ratings yet
Accounting Estimates
6 pages
IAS8
No ratings yet
IAS8
2 pages
IAS 8 Accounting Policies, Changes In: Accounting Estimates and Errors
No ratings yet
IAS 8 Accounting Policies, Changes In: Accounting Estimates and Errors
2 pages
Chapter 2 Accounting Policies
No ratings yet
Chapter 2 Accounting Policies
16 pages
Session 14 - IAS 8
No ratings yet
Session 14 - IAS 8
5 pages
Accounting Policies, Estimates and Errors
No ratings yet
Accounting Policies, Estimates and Errors
2 pages
International Accounting Standard - IAS 8
No ratings yet
International Accounting Standard - IAS 8
19 pages
Class 1 and 2 Chapter 3. Reporting Financial Performance
No ratings yet
Class 1 and 2 Chapter 3. Reporting Financial Performance
59 pages
26 Accounting Policies Estimates and Errors s19
No ratings yet
26 Accounting Policies Estimates and Errors s19
53 pages
Ias 8 Accounting Policies, Change in Accounting Estimates and Errors
No ratings yet
Ias 8 Accounting Policies, Change in Accounting Estimates and Errors
13 pages
Accounting Policy Changes Guide
No ratings yet
Accounting Policy Changes Guide
5 pages
Lesson 6 - PAS 8 (Accounting Policy, Errors, and Estimate)
No ratings yet
Lesson 6 - PAS 8 (Accounting Policy, Errors, and Estimate)
16 pages
Ias 8 Accounting Policies Changes in Accounting Estimates and Errors Summary
No ratings yet
Ias 8 Accounting Policies Changes in Accounting Estimates and Errors Summary
5 pages
IAS 8 Accounting Policies Changes in Accounting Estimates and Errors (December 2003)
100% (4)
IAS 8 Accounting Policies Changes in Accounting Estimates and Errors (December 2003)
3 pages
IAS-8: Accounting Policies & Errors
No ratings yet
IAS-8: Accounting Policies & Errors
30 pages
Accounting Changes and Error Analysis: Tenth Canadian Edition
No ratings yet
Accounting Changes and Error Analysis: Tenth Canadian Edition
41 pages
Ias - 08
No ratings yet
Ias - 08
12 pages
Summary of IAS 8
No ratings yet
Summary of IAS 8
5 pages
Accounting Policy Changes Guide
No ratings yet
Accounting Policy Changes Guide
2 pages
Chapter 5 PAS 8 Notes (EDITED)
No ratings yet
Chapter 5 PAS 8 Notes (EDITED)
3 pages
IAS 8 Assignment
No ratings yet
IAS 8 Assignment
3 pages
IPSAS 3 Presentation
No ratings yet
IPSAS 3 Presentation
10 pages
IPSAS 3 Accounting Policies, Change in Estimates and Errors
No ratings yet
IPSAS 3 Accounting Policies, Change in Estimates and Errors
24 pages
IPSAS 3 IPSAS 14 Recommended Practice Guidelines 1
No ratings yet
IPSAS 3 IPSAS 14 Recommended Practice Guidelines 1
51 pages
IFRS Accounting Policy Guide
No ratings yet
IFRS Accounting Policy Guide
9 pages
Practice Set No. 5 For Printing
No ratings yet
Practice Set No. 5 For Printing
4 pages
IFRS 5e Change in Accounting Policies, Estimates and Errors 2022
No ratings yet
IFRS 5e Change in Accounting Policies, Estimates and Errors 2022
26 pages
Accounting Changes & Error Corrections
No ratings yet
Accounting Changes & Error Corrections
17 pages
Unit Number/ Heading Learning Outcomes
No ratings yet
Unit Number/ Heading Learning Outcomes
10 pages
Lecture Note On Acct Policies
No ratings yet
Lecture Note On Acct Policies
4 pages
Change in Accounting Policy
No ratings yet
Change in Accounting Policy
5 pages
IMG 6132.jpg
No ratings yet
IMG 6132.jpg
1 page
ACCT201A Reviewer
No ratings yet
ACCT201A Reviewer
6 pages
Accounting Policies Changes in Accounting Estimates and Errors IAS 8
No ratings yet
Accounting Policies Changes in Accounting Estimates and Errors IAS 8
16 pages
Accounting Changes
No ratings yet
Accounting Changes
2 pages
Ias 8 Engleza
No ratings yet
Ias 8 Engleza
9 pages
Accounting Policy Changes
No ratings yet
Accounting Policy Changes
8 pages
IAS 8: Accounting Policies & Errors
No ratings yet
IAS 8: Accounting Policies & Errors
44 pages
Summary of IAS 8
No ratings yet
Summary of IAS 8
1 page
Ochon TOA
No ratings yet
Ochon TOA
12 pages
Group 6
No ratings yet
Group 6
22 pages
Accounting Changes
No ratings yet
Accounting Changes
5 pages
(Ebook PDF) Financial Institutions Management: A Risk Management Approach 10th Edition by Anthony Saunders No Waiting Time
100% (6)
(Ebook PDF) Financial Institutions Management: A Risk Management Approach 10th Edition by Anthony Saunders No Waiting Time
110 pages
Construction Coordination Deed
No ratings yet
Construction Coordination Deed
35 pages
Derivatives Trading Schedule
No ratings yet
Derivatives Trading Schedule
3 pages
S8 The IS-LM Model
No ratings yet
S8 The IS-LM Model
32 pages
Invoice No - 177 Emami Station Canteen Panagarh
No ratings yet
Invoice No - 177 Emami Station Canteen Panagarh
1 page
Assignment 1
No ratings yet
Assignment 1
12 pages
Aar Commercial Co LTD CSE Annual Report 2017
No ratings yet
Aar Commercial Co LTD CSE Annual Report 2017
61 pages
Summary of Salaries, Benefits, & Allowances (Transparency Seal) Orig
No ratings yet
Summary of Salaries, Benefits, & Allowances (Transparency Seal) Orig
1 page
Alltech Biotech Account Summary
No ratings yet
Alltech Biotech Account Summary
4 pages
Accounting Activity
No ratings yet
Accounting Activity
11 pages
Bank Mega 2022 Annual Report
No ratings yet
Bank Mega 2022 Annual Report
541 pages
Accounting Career Guide
No ratings yet
Accounting Career Guide
17 pages
Computerized Accounting Course
100% (1)
Computerized Accounting Course
14 pages
2nd Case
No ratings yet
2nd Case
18 pages
Namerind Application 2023
No ratings yet
Namerind Application 2023
4 pages
Retirement of Partners Cbse Question Bank
71% (7)
Retirement of Partners Cbse Question Bank
6 pages
Chapter 2 - Time Value of Money - MCQ Test
No ratings yet
Chapter 2 - Time Value of Money - MCQ Test
5 pages
Anshula Kant's Journey
No ratings yet
Anshula Kant's Journey
5 pages
Fundamental Analysis: Objective of Investor
No ratings yet
Fundamental Analysis: Objective of Investor
17 pages
Partnership Admission 2
No ratings yet
Partnership Admission 2
12 pages
CA Foundation Accounts RTP June 2024 Castudynotes Com
No ratings yet
CA Foundation Accounts RTP June 2024 Castudynotes Com
43 pages
Periodical Increment Certificate
No ratings yet
Periodical Increment Certificate
1 page
Risk and Return Slides PDF
No ratings yet
Risk and Return Slides PDF
26 pages
Homework
No ratings yet
Homework
15 pages
Beginner's Guide to ICT Trading
No ratings yet
Beginner's Guide to ICT Trading
12 pages
JAIBP Accounting For Financial Services 200 MCQs
No ratings yet
JAIBP Accounting For Financial Services 200 MCQs
44 pages
3 - Partnership Dissolution
No ratings yet
3 - Partnership Dissolution
6 pages
CAIIB Module D: Financial Management
0% (1)
CAIIB Module D: Financial Management
40 pages
Ubi Bbps RFP
No ratings yet
Ubi Bbps RFP
85 pages
Analysis of Coffee Wars in India
100% (6)
Analysis of Coffee Wars in India
3 pages

TB 21

Uploaded by

TB 21

Uploaded by

Test Bank for Intermediate Accounting, Thirteenth Canadian Edition

CHAPTER STUDY OBJECTIVES

MULTIPLE CHOICE QUESTIONS

Answer No. Description

c *44. Effect of errors on working capital

*This topic is dealt with in an Appendix to the chapter.

*This topic is dealt with in an Appendix to the chapter.

*This topic is dealt with in an Appendix to the chapter.

MULTIPLE CHOICE QUESTIONS

1. Which of the following is NOT considered to be an accounting change?

3. Which of the following is NOT considered to be a change in accounting policy?

4. All of the following are considered to be accounting errors except for

6. An example of a correction of an error in previously issued financial statements is a change

8. The cumulative effect of a change in accounting policy is reported

CPA: Financial Reporting

11. Which of the following statements is CORRECT?

12. Retrospective application is required for all

15. Accounting for a retrospective change requires

16. The underlying principle of the retrospective application method is to

20. Which of the following should be given retrospective treatment?

c) who was responsible for the error

to account for them.

to account for them.

Section Reference: Changes in Accounting Policies and Estimates, and Errors

b) A journal entry into the next period is required.

*39. Counterbalancing errors do NOT include

CPA: Financial Reporting

Section Reference: Changes in Accounting Policies and Estimates, and Errors

Ex. 21-53 Matching accounting changes to situations

Ex. 21-54 Matching disclosures to situations

income in 2020 and 2021.

2. Voluntary Changes in Accounting Policy

Ex. 21-56 Recognition of accounting changes or corrections

2. Correction of an error; retrospective treatment; restatement of financial statements of all prior

3. Change in accounting policy; retrospective treatment; adjustment of beginning retained

4. Correction of an error; restatement of financial statements of the period affected; adjustment of

Ex. 21-57 Effects of errors on financial statements

1. Ending 2022 inventory overstated.

Ex. 21-58 Effects of errors on net income

2022 ending inventory.......................................................... $(20,000)

Ex. 21-59 Factors in choosing accounting methods and procedures

Ex. 21-60 IASB and accounting policies and estimates

*Ex.21–61 Error corrections

b) $2,100 understated + $1,500* understated + $2,500 understated – $200 overstated = $5,900

c) $2,100 understated + $1,500* understated + $2,500 Understated = $6,100 understated

*Ex. 21-62 Non-counterbalancing error correction

Depreciation Expense............................................................................... 26,000

Pr. 21-63 Correction of errors in prior years

2021, $62,000; 2022, $63,000; 2023, $60,000

b) Retained Earnings..................................................................................... 5,200

Pr. 21-64 Accounting for accounting changes and error corrections

2023 2022 2021

Instructions (Ignore all income tax effects)

b) 2023 2022 2021

c) Retained earnings (unadjusted).......................................................... $630,000

d) Retained earnings (unadjusted).......................................................... $900,000

Pr.21-65 Changes in estimates

Accumulated amortization to July 31/22: $315,000 ÷ 12 × 3 = $78,750

Pr. 21-66 Accounting policies under IFRS and ASPE

*Pr. 21-67 Error corrections and adjustments

From 2022 sales 10,600 4,000

2. Consignment (20% × $160,000)........................................................ (32,000)

3. Gross profit—Recognized.................................................................. 75,000

b) 1. Retained Earnings............................................................................. 21,800

2. Consignment Inventory..................................................................... 128,000

3. Retained Earnings............................................................................. 53,500

Deferred Gross Profit................................................................. 53,500

You might also like