Per U.S. GAAP, which of the following statements is correct regarding accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?

Per U.S. GAAP, which of the following statements is correct regarding accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?

a. Cumulative-effect adjustments should be reported as separate items on the income statement in the year of change.
b. No restatements or adjustments are required if the changes involve consolidated methods of accounting for subsidiaries.
c. No restatements or adjustments are required if the changes involve the cost or equity methods of accounting for investments.
d. The financial statements of all prior periods presented should be restated






Answer: D

Under U.S. GAAP, a transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income:

Under U.S. GAAP, a transaction that is unusual in nature and infrequent in occurrence should be  reported separately as a component of income:

a. After cumulative effect of accounting changes and before discontinued operations of a segment
of a business.
b. After cumulative effect of accounting changes and after discontinued operations of a segment of a business.
c. Before cumulative effect of accounting changes and before discontinued operations of a segment of a business.
d. After discontinued operations of a segment of a business.








Answer: D

On October 1, 20X3 , Wand , Inc. committed itself to a formal plan to sell its Kam division's assets early in 20X4. On that date, Wand estimated that the fair value of the component's assets was $25,000 less than the carrying value. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1, 20X3 through December 31, 20X3 and $50 ,000 for the period January 1, 20X4 through February 28, 20X4. All estimates proved to be materially correct. Disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative 20X3 and 20X4 income statements?

On October 1, 20X3 , Wand , Inc. committed itself to a formal plan to sell its Kam division's assets early in 20X4. On that date, Wand estimated that the fair value of the component's assets was $25,000 less than the carrying value. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1, 20X3 through December 31, 20X3 and $50 ,000 for the period January 1, 20X4 through February 28, 20X4. All estimates proved to be materially correct. Disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative 20X3 and 20X4 income statements?

20X3 20X4



a. $175,000 0
b. $125,000 50000
c. $100,000 75000
d. $0 175000






Answer: B

During Year 2, Orea Corp. decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were as follows:

During Year 2, Orea Corp. decided to change from the FIFO method of inventory valuation to the  weighted average method. Inventory balances under each method were as follows:

January 1, Year 2
December 31, Year 2 $71,000
Orca's income tax rate is 30°/o.
FIFO 79,000
Weighted-average $77,000 83,000 Orea should report the cumulative effect of this accounting change as a(n):

a. Adjustment to beginning retained earnings.
b. Component of income from continuing operations.
c. Extraordinary item.
d. Component of income after extraordinary items.






Answer: A

Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during the current year. The cumulative effect of this change should be reported in Lore's current year financial statements as a:

Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during the  current year. The cumulative effect of this change should be reported in Lore's current year financial  statements as a:

a. Prior period adjustment resulting from the correction of an error.
b. Prior period adjustment resulting from the change in accounting principle.
c. Component of income before extraordinary item.
d. Component of income after extraordinary item.







Answer: A

In open market transactions , Gold Corp. simultaneously sold its long-term investment in Iron Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions. Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently. Under U.S. GAAP , Gold should report the:

In open market transactions , Gold Corp. simultaneously sold its long-term investment in Iron Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions. Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently. Under U.S. GAAP , Gold should report the:

a. Net effect of the two transactions as an extraordinary gain .
b. Net effect of the two transactions in income before extraordinary items.
c. Effect of its own bond transaction gain in income before extraordinary items, and report the Iron bond transaction as an extraordinary loss.
d. Effect of its own bond transaction as an extraordinary gain , and report the Iron bond
transaction loss in income before extraordinary items.




Answer: D