Question

11) Which of the following changes would NOT be accounted fo 1) - approach? 3 changes would NOT be accounted for using the prospective nge in inventory costing from the LIFO method to the FIFO method. B) A change in depreciation methods from double-declining balance to straight-line. C) A change in a contingent liability related to litigation due to settlement of the claim. D) A change in the calculation of bad debt allowance due to new information about collectibility of customer accounts. 12) inded due to 12) Blue Co has a patent on a communication process. The company has amortized the patent on a straight line basis since 2014. when it was acquired at a cost of $36 million at the besinning of that year. Due to rapid technological advances in the industry, management decided during 2018 that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. What is the appropriate patent amortization expense Blue should record in 2018? A) $3.3 B) SIO C) $6 million D) S4 million million million 13) The prospective approach is REQUIRED for A) A change in accounting principle. C) A change in estimate 13) B) A change in reporting entity. D) Correction of a material error. 14) Which of the following is a change in reporting entity? A) A change from the straight-line to the double declining balance depreciation method. B) A change from FIFO to the LIFO inventory cost method. C) Changing the companies included in combined financial statements. D) A change in judgment regarding accounts receivable balances that are uncollectible. 15) 15) In 2018, Benton Well Supplies discovered that a five-year insurance premium of $500,000 paid as of January 1, 2015, was debited in full to insurance expense Assuming the amount of the premium was considered to be material, the correcting entry as of January 1. 2018 would include (ignore any effects of income taxes): A) A credit to retained earnings of $200,000. B) A credit to retained earnings of $500,000 C) A debit to retained earnings of $200,000. D) A debit to retained earnings of $500,000 Bhore any effects B) A credit to tained earnings of Son

Answer 1

11) The following changes that would not be accounted for using prospective approach are relating to

A change in inventory costing from the LIFO method to FIFO method as prospective approach applies for the change in liability,bad debt allowance and depreciation methods.

13) The prospective approach is required for the change in the estimate as it implies the application of the new accounting policies to the transactions after the date of policy change.

12) The appropriate patent amortization expense Blue should record in 2018 is $4 million($36million/9) as it is being ammortized for 9 year period at its cost. Even though the benefit from the patent is acquired for 6 years period only.

14) Change in reporting entity relates to changing the companies included in combined financial statements. As two or more separate entities are combined into single entity.

15) A credit to retained earnings of $5,00,000

Insurance expense a/c...dr $5,00,000

To retained earnings $5,00,000