Which of the following is most likely to be a non-adjusting event? * A major customer liquidates its business after the end of the reporting period. The entity announces a major restructuring after the end of the reporting period. The settlement after the reporting period of a court case that confirms that the entity has a present obligation at the end of reporting period. The determination after the reporting period of the cost of asset purchased, or the proceeds from asset sold, before the end of reporting period.

Which of the following is most likely to be a non-adjusting event? * A major customer liquidates its business after the end of the reporting period. The entity announces a major restructuring after the end of the reporting period. The settlement after the reporting period of a court case that confirms that the entity has a present obligation at the end of reporting period. The determination after the reporting period of the cost of asset purchased, or the proceeds from asset sold, before the end of reporting period.

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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Subsequent Events can be classified as adjusting events and non-adjusting events. For the list of eventsbelow indicate whether the event is adjusting or non-adjusting?i. Insolvency of a receivable after year endii. Destruction of significant asset after year endiii. Sale of inventories after year end… evidence of Net Realisable Valueiv. Issue of shares/debt after year endv. Discovery of errors/fraud revealing Financial Statement incorrect after year endvi. Take-over of another business after year endvii. Purchases/sales of significant non-current assets after year endviii. Agreement of tax liability after year end
Which of the following adjusting entries involves the recognition of an accrued expense? a. recording depreciation on a long-lived asset b. writing off the portion of an insurance policy that has expired c. recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period d. recognition of bad debt losses that are expected to result from making sales on credit terms
The following are non-adjusting events, except A. Declaration of dividends after the reporting date does not indicate existence of liability to pay dividends at the reporting date and shall not therefore trigger the recognition of liability in financial statements B. Destruction of assets of the entity by floods occurring after the reporting period does not indicate that the assets of the entity were impaired at the end of reporting period. C. Management's plan to discontinue or significantly curtail its activities in major geographic segments. D. Detection of fraud or errors after the reporting period may indicate that the financial statements are misstated.
vRay Solutions decided to make the following changes in its accounting policies on January 1, 2018:a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2018.c. Changed from the LIFO inventory method to the FIFO inventory method.Required:For each accounting change Ray undertook, indicate the type of change and how Ray should report the change.Be specific.
A change in accounting estimate is An adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability. A change in the specific principles, bases, conventions, rules and practices applied b an entity in preparing and presenting financial statements. Omission from, and misstatement in an entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available and could reasonably be expected to have been obtained and taken into account in preparing those statements. All of the above.
All else being equal, if a company FAILS to record an impairment loss on a depreciable asset at the end of the accounting period, what is the overall net effect on net income and the balance sheet equation for that period? Item Net Income Assets Liabilities Owners’ Equity A. Overstated Understated No effect Understated B. Overstated Overstated No effect Overstated C. No effect No effect No effect No effect D. Understated Understated No effect Understated E. Understated Overstated No effect Overstated
When a company changes from the straight-line method of depreciation for previously recorded assets to the double declining balance method, which of the following should be reported?Cumulative effects of change in accounting principle, Pro forma effects of retroactive applicationa. No Nob. No Yesc. Yes Yesd. Yes No
Which of the following describes the purpose(s) of closing entries? a. Adjust the balances of asset and liability accounts for unrecorded activity during the period.b. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. c. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period. d. Both b. and c.
Accounting ChangesIt is important in accounting theory to be able to distinguish the types of accounting changes:Required:a) If a public company desires to change from the sum-of-year’s-digits depreciation method to the straight-line method for its fixed assets, what type of accounting change will this be? How would it be treated? Discuss the permissibility of this change.b) If a public company obtained additional information about the service lives of some of its fixed assets that showed that the service lives previously used should be shortened, what type of accounting change would this be? Include in your discussion how the change should be reported in the income statement of the year of the change and what disclosures should be made in the financial statements or notes.
) A company has decided to change its depreciation method to better reflect the pattern of use ofits equipment.Which of the following correctly reflects what this change represents and how it should beapplied?A It is a change of accounting policy and must be applied prospectivelyB It is a change of accounting policy and must be applied retrospectivelyC It is a change of accounting estimate and must be applied retrospectivelyD It is a change of accounting estimate and must be applied prospectively
If a company makes a prior period adjustment, which of the following describes how it must be reported? 1.The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are not changed 2.The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are adjusted. 3.The adjustment is recorded as a deferred asset or deferred liability and amortized using the straight-line method. 4.The adjustment is reported in the current period's income statement as a separate item.
Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material effect on the financial statements for the current year of your business enterprise. 1. A change from the completed-contract method to the percentage-of-completion method of accounting for long-term construction-type contracts. 2. A change in the estimated useful life of previously recorded fixed assets as a result of newly acquired information. 3. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits. 4. A change from including the employer share of FICA taxes with payroll tax expenses to including it with “Retirement benefits” on the income statement. 5. Correction of a mathematical error in…