Statement 1 : Expenses associated directly with revenue are matched against revenue in those interim periods in which the related revenue is recognized. Statement 2 : Inventory losses from permanent market declines are recognized in the interim period in which the decline occurs. Recoveries of such losses on the same inventory in later interim period should be recognized as gains in the interim periods where the decline occurred. Only statement 1 is true Only statement 2 is true Both statements are false Both statements are true

Statement 1 : Expenses associated directly with revenue are matched against revenue in those interim periods in which the related revenue is recognized. Statement 2 : Inventory losses from permanent market declines are recognized in the interim period in which the decline occurs. Recoveries of such losses on the same inventory in later interim period should be recognized as gains in the interim periods where the decline occurred. Only statement 1 is true Only statement 2 is true Both statements are false Both statements are true

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 27CYBK

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Statement 1 : Expenses associated directly with revenue are matchedagainst revenue in those interim periods in which the related revenue isrecognized. Statement 2 : Inventory losses from permanent marketdeclines are recognized in the interim period in which the decline occurs.Recoveries of such losses on the same inventory in later interim periodshould be recognized as gains in the interim periods where the declineoccurred A. Only statement 1 is trueB. Only statement 2 is trueC. Both statements are falseD. Both statements are true
The following statements are correct except a.Under the allowance method, estimated losses from uncollectible accounts are recognized as expenses in the subsequent period in which the related sales occur. b.A trade discount is the reduction in the list sales price of an item to arrive at the net sales price actually charged to the customer. c.When it appears that the estimate of uncollectible accounts of a prior period was too low, the corrections must be reported as corrections to the current period financial statements. d.The bad debt expense for a period should be determined by recognizing the estimated losses from uncollectible accounts in the period in which receivables are determined to be uncollectible.
Do you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors are said to correct themselves. Market usually means replacement cost of inventory when applied in the LCM. Cost of goods available for sale equals ending inventory plus cost of sales.
Do you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors as said to correct themselves. Market usually means replacement cost of inventory when applied in the LMC. Cost of goods available for sale equals the inventory plus cost of sales.
Which of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.
TRUE OR FALSE?If ending inventory of prior year is overstated, retained earnings is understated
5. The following items affect the retained earnings account, except Group of answer choices a. net income or loss for the period b. prior period errors c. realization of revaluation surplus d. effect of change in accounting estimate
TRUE OR FALSE 1. If beginning inventory of prior year is understated, retained earnings is understated. 2. The change in depreciation method is a change in accounting policy. 3. If ending inventory of prior year is overstated, retained earnings is understated 4. The change in accounting estimate should be treated currently and prospectively.
Requirements: a. What are the net effects of the errors on Biden's 20x1 and 20x2 profit or loss, repesctively? b. What is the effect of the errors on Biden's December 20x2 retained earnings?
If the income statement error is discovered in a subsequent accounting period, what action is to be done by the entity? Group of answer choices a. Reclassify the item to its proper nominal account and restate the income statement of the prior year affected by the error. b. Restate the income statement of the prior year affected by the error. c. No reclassifying entry is necessary but restate the income statement of the prior year affected by the error. d. Reclassify the item to its proper nominal account. Recording of next year's sales as sales of the current year will Group of answer choices a. overstate net income of next year b. not affect retained earnings at the end of next year c. understate retained earnings at the end of the current year d. understate net income of the current year
Which of the following statements is correct? Options: • The net income would still be the same regardless of accounting method that is used whether cash basis or accrual basis • Pre-collections initially recorded as income will overstate the profit at the end of the accounting period if no adjustment is done for unearned portion • Deferral is intended to recognize income earned but not yet received • Accrual of expenses will increase the expense element and will correspondingly decrease the liability
The three types of accounting changes, including error correction, are: Code Change in accounting policy. Change in accounting estimate. Error correction. Required: 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 understatement of inventory. _____ 2. Change due to charging a new asset directly to an expense account. _____ 3. Change from expensing to capitalizing certain costs, due to a change in periods benefited. _____ 4. Change from FIFO to average-cost inventory procedures. _____ 5. Change due to failure to recognize an accrued (uncollected) revenue. _____ 6. Change in amortization period for an intangible asset. _____ 7. Change in expected recovery of an account receivable. _____ 8. Change in the loss rate on warranty costs. _____ 9. Change due to failure to recognize and accrue income. _____ 10. Change in…