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web.groovymark@gmail.com
- December 15, 2024
Question 41
What errors only affect the presentation of an asset, liability, or equity?
A) Income statement errors
B) Balance sheet errors
C) Comprehensive income errors
D) Cash flow errors
Answer: B) Balance sheet errors
Explanation:
Balance sheet errors affect only the presentation of assets, liabilities, or equity but do not
impact the income statement.
Question 42
What errors only affect the presentation of revenue, expense, gain, or loss accounts?
A) Balance sheet errors
B) Income statement errors
C) Comprehensive income errors
D) Cash flow errors
Answer: B) Income statement errors
Explanation:
Income statement errors impact the presentation of revenue, expense, gain, or loss
accounts but do not affect the balance sheet.
Question 43
What errors involve both the balance sheet and income statement?
A) Balance sheet errors
B) Income statement errors
C) Cash flow errors
D) Balance sheet and income statement errors
Answer: D) Balance sheet and income statement errors
Explanation:
Some errors, such as those involving revenue or expense recognition, affect both the
balance sheet (retained earnings) and the income statement.
Question 44
Counterbalancing errors are offset or corrected over how many periods?
A) One period
B) Two periods
C) Three periods
D) Over the asset’s life
Answer: B) Two periods
Explanation:
Counterbalancing errors correct themselves over two periods, typically because they
relate to timing differences.
Question 45
Noncounterbalancing errors typically take how long to correct?
A) One period
B) Two periods
C) Longer than two periods
D) Over the life of the asset
Answer: C) Longer than two periods
Explanation:
Noncounterbalancing errors take longer than two periods to correct themselves and
typically require a journal entry to fix the error.
Question 46
What is an example of a correction of an error in previously issued financial statements?
A) Change in depreciation method
B) Change to compensation expense for bonuses earned in the prior period that
are paid in the subsequent period
C) Change in useful life of an asset
D) Change from LIFO to FIFO
Answer: B) Change to compensation expense for bonuses earned in the prior period that
are paid in the subsequent period
Explanation:
Adjustments for prior period compensation expenses that were not recorded correctly are
treated as corrections of errors.
Question 47
In 2019, PWT Company failed to record depreciation expense on some of its assets.
When the error is discovered in 2020, how will the error be accounted for?
A) Prospectively
B) As an extraordinary item
C) As a prior period adjustment
D) In the footnotes
Answer: C) As a prior period adjustment
Explanation:
A failure to record depreciation is considered an error, and it must be corrected as a prior
period adjustment when discovered.
Question 48
What is the reason why companies prefer certain accounting methods?
A) Tax benefits
B) Simplicity
C) Industry standards
D) Bonus payments
Answer: D) Bonus payments
Explanation:
Companies often choose accounting methods that will maximize reported income,
thereby increasing bonus payments tied to net income.
Question 49
Which item is considered an accounting error in accrual accounting?
A) Change in depreciation method
B) Recording inventory using LIFO
C) Recording an incorrect inventory value due to a mathematical mistake
D) Changing the useful life of an asset
Answer: C) Recording an incorrect inventory value due to a mathematical mistake
Explanation:
Errors that result from mathematical mistakes, such as incorrectly recording inventory
values, are considered accounting errors and must be corrected.
Question 50
A company purchases equipment costing $50,000 that is expected to have a useful life of
five years with no salvage value. In Year 3, after two years of depreciation have been
recorded, the company changes methods and decides the asset should be depreciated using
a declining balance method. Which disclosure completely illustrates the treatment required
for this change?
A) Disclosure is only required in the footnotes
B) Companies need to disclose the effect on income from operations, the related
per share amounts for the current period, and why the new method is preferred
C) The company must restate prior years’ income
D) No disclosure is needed unless the change is material
Answer: B) Companies need to disclose the effect on income from operations, the related
per share amounts for the current period, and why the new method is preferred
Explanation:
A change in depreciation method is a change in accounting estimate, and the company
must disclose the reason for the change and its effect on income in the current period
