The accountant at Allied Client inadvertently recorded depreciation expense as $57,000 instead of $75,000. Which of the four primary financial statements (i.e., Income Statement, Statement of Changes in Equity, Balance Sheet, and Statement of Cash Flows) will be incorrect if this error is not corrected before the statements are issued?

The accountant at Allied Client inadvertently recorded depreciation expense as $57,000 instead of $75,000. Which of the four primary financial statements (i.e., Income Statement, Statement of Changes in Equity, Balance Sheet, and Statement of Cash Flows) will be incorrect if this error is not corrected before the statements are issued?

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter1: Comprehensive Cases

Section1.11: New Century Financial Corporation

Problem 4Q

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The Accountant for the a Company forgot to make an adjusting entry to record depreciation for the current year. The effect of this error would be: a An overstatement of net income and an understatement of assets. b An overstatement of assets offset by an understatement of owners' equity. c An overstatement of assets, net income, and owners' equity. d An overstatement of assets and of net income and an understatement of owners' equity.
Which of the following is not a characteristic of non-counterbalancing error? a. If not detected, this is not automatically corrected in the next accounting period. b. The income statement of the period in which the non-counterbalancing error is committed is misstated. c. The statement of financial position of the year of non-counterbalancing error and succeeding statement of financial position are incorrect until the error is corrected. d. If the net income of one year is understated due to non-counterbalancing error, the net income of subsequent year is also affected.
Which of the following statements regarding accounting change is correct? a. Change in depreciation method is accounted for as a change in accounting policy. b. Change in accounting estimate is accounted for in current and future periods. c. The categories of accounting changes are change in accounting estimate and correction of prior period error. d. A switch from the direct write-off method to the allowance method of accounting for bad debts is an example of change in accounting policy.
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
7. Indicate which of the following losses or expenses would be included in calculating a net operating loss by placing a check mark on the appropriate line. A. A short-term capital loss that resulted from selling stock B. Net business loss from a sole proprietorship C. A casualty loss involving a personal residence that resulted from a Presidentially declared disaster D. Loss from selling 1244 stock E. Deductible contributions made to a traditional IRA account F. Loss in selling business equipment G. Charitable donations claimed as itemized deductions 8. If a net operating loss is carried forward to a future return, the deduction would be allowed only as a deduction from AGI (an itemized deduction). True False
If the income statement error is discovered in the year of error, what action is to be done by the entity? a. Reclassify the item to its proper nominal account. b. Reclassify the item to real account. c. Adjust the effect to the retained earnings account. d. Ignore the error.
If the statement of financial position error is discovered in the year of error, what action is to be done by the entity? Ignore the Reclassify the item to its proper real account. Adjust the effect to the retained earnings account. Reclassify the item to nominal account.
Choose the incorrect statement below:A. Recognition for depreciation under the cash basis of accounting is different from that of the accrual basis of accounting.B. Deferred income is income already received but not yet earned.C. At the end of the accounting period, adjustments are made for accruals and prepayments in order to convert the cash records to accrual records.D. To compute for the sales on account, the beginning balance of trade accounts and notes receivable is deducted from the total of trade accounts and notes receivable, ending balance, collection of trade accounts and notes receivable, sales returns, discounts, and allowances and accounts written off.
According to AASB110, which of the following is an adjusting event? Select one: a. All of the above b. Determination after the end of the reporting period of amount of profit sharing or bonus payments c. Determination after the end of the reporting period of cost of assets purchased prior to year end d. Discovery of fraud or errors showing that the financial statements are incorrect
The bookkeeper for your company made a mistake and forgot to accrue interest expense at the end of the year. This mistake would cause which of the following in the financial statements? Assets are overstated and expenses are understated. Liabilities are overstated and retained earnings are understated. Both liabilities and net income are overstated. Liabilities are understated and net income is overstated. Both assets and liabilities are understated.
The purchase of fixed assets totalling $ 100 on account was incorrectly recorded as a debit to expense and a credit to cash. As a result of this error, which of the following statements is true?
Which of the following is the incorrect effect of counterbalancing errors?a. None of the statements is incorrect. b. The statement of financial position at the end of the first period is incorrect. c. The income statements for three successive periods are incorrect. d. The statements of financial position at the end of the second period is correct.