Question 1

When accountants discover material errors,they must be corrected.

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Question 2

When a self-correcting error is discovered after closing the books for the second year ________.

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Question 3

Describe a change in reporting and discuss its accounting treatment and its required disclosures.

Accepted Answer

A change in reporting could refer to a change in the accounting policies, disclosures or presentation of financial statements. The accounting treatment and required disclosures would depend on the nature of the change. If the change in reporting is a change in accounting policy, then it would be applied retrospectively and adjustments made to comparative figures in the financial statements. The required disclosures would include the nature of the change, the reasons for the change, the amount of adjustment made to comparative figures, and the effect on the current period's financial statements. If the change is a change in presentation or disclosures, the required disclosures would include the nature of the change and the reasons for the change. It is important for companies to ensure that the change in reporting is compliant with accounting standards and clearly communicated to investors and other stakeholders in the financial statements.

Question 4

Firms account for material error corrections ________.

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Question 5

A self-correcting error must self-correct within two years.

Accepted Answer

There is no set time frame for a self-correcting error to self-correct. It depends on the nature of the error and the context in which it occurs.

Question 6

When an income statement error,that does not affect the balance sheet,is not found until after the books are closed,an entry ________.

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Question 7

Self-correcting errors do not require any journal entries regardless of the length of time involved.

Accepted Answer

Self-correcting errors do not require any journal entries, whether they were corrected immediately or over a long period of time.

Question 8

Which one of the following is not a required disclosure for a change in reporting entity?
A)the nature of the change and the reason for the change
B)the effect of the change on income from continuing operations
C)the effect of the change on operating expenses
D)the effect of the change on other comprehensive income

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Question 9

A self-correcting error,discovered after the books are closed in the second year,still requires a journal entry.

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Question 10

A financial statement can provide a faithful representation even if it is not perfectly accurate as long as the process is selected and applied with no errors and the description of the transaction is free from error.

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Question 11

Many errors are due to misapplication of accounting policies.

Accepted Answer

Accounting policies can be complex and if they are not properly understood or applied, errors can occur in financial statements.

Question 12

Income statement errors in the current year that do not affect the balance sheet may ________.

Accepted Answer

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Question 13

The bookkeeper for Phillips,Inc.mistakenly recorded a $300,000 three-year trade note receivable as long-term note receivable in 2015.Interest revenue was correctly recorded.The error was discovered in 2017 by the company's auditors.What is the proper way to correct the error?

Accepted Answer

The proper way to correct the error is to adjust the classification and adjust retained earnings for both 2015 and 2016. This is because the error affects the comparative balance sheets of those years, and correcting the classification will result in a change in working capital. Therefore, choice D is the most appropriate option.

Question 14

A fraud is a type of accounting error.

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Question 15

Which one of the following is not a change in a reporting entity?

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Question 16

Balance sheet errors that affect assets,liabilities and equity only,are typically the result of misclassification of accounts and require correction upon discovery.

Accepted Answer

Balance sheet errors that affect assets, liabilities, and equity are typically the result of misclassification of accounts, and when discovered, they require correction to ensure accurate financial reporting.

Question 17

When a firm has a change in reporting entity,it must disclose ________.
A)the individual financial statements for each component entity
B)the effect of the change on net income and EPS for each year presented
C)the reasons that the company chose to purchase a new business unit
D)the reasons for the lack of comparability to prior financial statements

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Question 18

A material error is one that if not corrected,it would impact a user's decisions.

Accepted Answer

A material error is one that could affect a user's decisions, so it is important to correct such errors.

Question 19

Material error corrections are retrospectively applied but do not require disclosures for changes in retained earnings as prior-period adjustments.

Accepted Answer

Material error corrections are retrospectively applied and do require adjustments to retained earnings as prior-period adjustments, but do not require disclosures.

Question 20

A change in reporting entity must be treated retrospectively for a maximum of two prior years.

Accepted Answer

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Quiz 22: Accounting Corrections and Error Analysis