Intermediate Accounting Chapter 22 Exam Questions and Answers 100% Correct
Accounting changes are often made and the monetary impact is reflected in the financial statements of
a company even though, in theory, this may be a violation of the accounting concept of
a. materiality.
b. consistency.
c. conservatism.
d. objectivity. - Answers B. Consistency
Which of the following is not treated as a change in accounting principle?
a. A change from LIFO to FIFO for inventory valuation
b. A change to a different method of depreciation for plant assets
c. A change from full-cost to successful efforts in the extractive industry
d. A change from completed-contract to percentage-of-completion - Answers B. A change to a different
method of depreciation for plant assets
Which of the following is not a retrospective-type accounting change?
a. Completed-contract method to the percentage-of-completion method for long-term contracts
b. LIFO method to the FIFO method for inventory valuation
c. Sum-of-the-years'-digits method to the straight-line method
d. "Full cost" method to another method in the extractive industry - Answers C. Sum-o-the-years'-digits
method to the straight-line method
Which of the following is accounted for as a change in accounting principle?
a. A change in the estimated useful life of plant assets.
b. A change from the cash basis of accounting to the accrual basis of accounting.
c. A change from expensing immaterial expenditures to deferring and amortizing them as they become
material.
d. A change in inventory valuation from average cost to FIFO. - Answers D. A change in inventory
valuation from average cost to FIFO
A company changes from straight-line to an accelerated method of calculating depreciation, which will
be similar to the method used for tax purposes. The entry to record this change should include a
,a. credit to Accumulated Depreciation.
b. debit to Retained Earnings in the amount of the difference on prior years.
c. debit to Deferred Tax Asset.
d. credit to Deferred Tax Liability. - Answers A. credit to Accumulated Depreciation
Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?
a. The cumulative effect on prior years, net of tax, in the current retained earnings statement
b. Restatement of prior years' income statements
c. Recomputation of current and future years' depreciation
d. All of these are required. - Answers C. Recomputation of current and future years' depreciation
A company changes from percentage-of-completion to completed-contract, which is the method used
for tax purposes. The entry to record this change should include a
a. debit to Construction in Process.
b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
c. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
d. credit to Deferred Tax Liability. - Answers C. debit to Retained Earnings in the amount of the
difference on prior years, net of tax
Which of the following disclosures is required for a change from LIFO to FIFO?
a. The cumulative effect on prior years, net of tax, in the current retained earnings statement
b. The justification for the change
c. Restated prior year income statements
d. All of these are required. - Answers D. All of these are required
Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting
change does this represent?
a. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
b. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
, c. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.
d. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be restated. - Answers B. A change in accounting principle for which the
financial statements for prior periods included for comparative purposes should be presented as
previously reported.
Which type of accounting change should always be accounted for in current and future periods?
a. Change in accounting principle
b. Change in reporting entity
c. Change in accounting estimate
d. Correction of an error - Answers C. change in accounting estimate
Which of the following is (are) the proper time period(s) to record the effects of a change in accounting
estimate?
a. Current period and prospectively
b. Current period and retrospectively
c. Retrospectively only
d. Current period only - Answers A. current period and prospectively
When a company decides to switch from the double-declining balance method to the straight-line
method, this change should be handled as a
a. change in accounting principle.
b. change in accounting estimate.
c. prior period adjustment.
d. correction of an error. - Answers B. change in accounting estimate
The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50
years has been revised to a 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.
Accounting changes are often made and the monetary impact is reflected in the financial statements of
a company even though, in theory, this may be a violation of the accounting concept of
a. materiality.
b. consistency.
c. conservatism.
d. objectivity. - Answers B. Consistency
Which of the following is not treated as a change in accounting principle?
a. A change from LIFO to FIFO for inventory valuation
b. A change to a different method of depreciation for plant assets
c. A change from full-cost to successful efforts in the extractive industry
d. A change from completed-contract to percentage-of-completion - Answers B. A change to a different
method of depreciation for plant assets
Which of the following is not a retrospective-type accounting change?
a. Completed-contract method to the percentage-of-completion method for long-term contracts
b. LIFO method to the FIFO method for inventory valuation
c. Sum-of-the-years'-digits method to the straight-line method
d. "Full cost" method to another method in the extractive industry - Answers C. Sum-o-the-years'-digits
method to the straight-line method
Which of the following is accounted for as a change in accounting principle?
a. A change in the estimated useful life of plant assets.
b. A change from the cash basis of accounting to the accrual basis of accounting.
c. A change from expensing immaterial expenditures to deferring and amortizing them as they become
material.
d. A change in inventory valuation from average cost to FIFO. - Answers D. A change in inventory
valuation from average cost to FIFO
A company changes from straight-line to an accelerated method of calculating depreciation, which will
be similar to the method used for tax purposes. The entry to record this change should include a
,a. credit to Accumulated Depreciation.
b. debit to Retained Earnings in the amount of the difference on prior years.
c. debit to Deferred Tax Asset.
d. credit to Deferred Tax Liability. - Answers A. credit to Accumulated Depreciation
Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?
a. The cumulative effect on prior years, net of tax, in the current retained earnings statement
b. Restatement of prior years' income statements
c. Recomputation of current and future years' depreciation
d. All of these are required. - Answers C. Recomputation of current and future years' depreciation
A company changes from percentage-of-completion to completed-contract, which is the method used
for tax purposes. The entry to record this change should include a
a. debit to Construction in Process.
b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
c. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
d. credit to Deferred Tax Liability. - Answers C. debit to Retained Earnings in the amount of the
difference on prior years, net of tax
Which of the following disclosures is required for a change from LIFO to FIFO?
a. The cumulative effect on prior years, net of tax, in the current retained earnings statement
b. The justification for the change
c. Restated prior year income statements
d. All of these are required. - Answers D. All of these are required
Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting
change does this represent?
a. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
b. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
, c. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.
d. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be restated. - Answers B. A change in accounting principle for which the
financial statements for prior periods included for comparative purposes should be presented as
previously reported.
Which type of accounting change should always be accounted for in current and future periods?
a. Change in accounting principle
b. Change in reporting entity
c. Change in accounting estimate
d. Correction of an error - Answers C. change in accounting estimate
Which of the following is (are) the proper time period(s) to record the effects of a change in accounting
estimate?
a. Current period and prospectively
b. Current period and retrospectively
c. Retrospectively only
d. Current period only - Answers A. current period and prospectively
When a company decides to switch from the double-declining balance method to the straight-line
method, this change should be handled as a
a. change in accounting principle.
b. change in accounting estimate.
c. prior period adjustment.
d. correction of an error. - Answers B. change in accounting estimate
The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50
years has been revised to a 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.
