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Intermediate Accounting III: Pre-Test - Errors and Changes

This document contains a pre-test with multiple choice questions about accounting for errors and changes. The first question asks about the accounting for a company changing from FIFO to weighted average inventory costing. The second question involves correcting an overstatement of inventory costs from a prior period. Subsequent questions provide information about errors discovered in a company's 2021 and 2022 financial statements regarding prepaid supplies, accrued salaries, and capitalized expenses, and ask about correcting the reported profits and retained earnings for those years.

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May Ramos
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613 views2 pages

Intermediate Accounting III: Pre-Test - Errors and Changes

This document contains a pre-test with multiple choice questions about accounting for errors and changes. The first question asks about the accounting for a company changing from FIFO to weighted average inventory costing. The second question involves correcting an overstatement of inventory costs from a prior period. Subsequent questions provide information about errors discovered in a company's 2021 and 2022 financial statements regarding prepaid supplies, accrued salaries, and capitalized expenses, and ask about correcting the reported profits and retained earnings for those years.

Uploaded by

May Ramos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Intermediate Accounting III

Pre-test - Errors and Changes

Name: ___________________________________________ Date: ___________


(Surname) (First Name) (M.I.)
Score: /
Section: ___________________________________________

1) During 2023, Tori Company decided to change from the FIFO inventory valuation to the weighted average
method. The income tax rate is 30%.
FIFO Weighted average
Instructions: Read 1each
January question carefully. Choose the BEST answer 7,500,000
inventory for each of the following items/Compute
8,300,000 for the correct
answers. Write your answers
December on the answer sheet provided. Show your 8,000,000
31 inventory solutions. 8,500,000

What amount should be reported as the cumulative effect on the net income of this accounting change for 2023?
A 210,000 increase B. 210,000 decrease C. 350,000 increase D. 350,000 decrease
.

2) After the issuance of the 2023 financial statements, Orange Company discovered a computational error of
P400,000 in the calculation of the December 31, 2023 inventory. The error resulted in a P400,000 overstatement
in the cost of goods sold for the year ended December 31, 2023. In October 2024, Orange paid the amount of
P900,000 in settlement of litigation instituted against it during 2023. The income tax rate is 30%. What is the
adjustment of the retained earnings on January 1, 2024 as a result of prior period errors?
A 400,000 credit B. 280,000 credit C. 350,000 debit D. 630,000 debit
.

Use the following information for the next four (4) questions:
Lakeland Company reported profits of P1,600,000 and P2,400,000 in 2021 and 2022, respectively. In 2023, the
following prior period errors were discovered:
 Prepaid supplies in 2021 were overstated by P80,000.
 Accrued salaries payable in 2021 were understated by P160,000.
 Repairs and maintenance expenses in 2021 amounting to P400,000 were erroneously capitalized and being
depreciated over a period of 4 years.

The unadjusted balances of retained earnings are P6,400,000 and P8,800,000 as of December 31, 2021 and 2022,
respectively.

3) How much is the correct profit in 2021?


A 1,720,000 B. 1,610,000 C. 1,060,000 D. 1,006,000
.

4) How much is the correct profit in 2022?


A 2,740,000 B. 2,704,000 C. 2,610,000 D. 2,160,000
.

5) How much is the correct retained earnings in 2021?


A 5,860,000 B. 5,806,000 C. 5,520,000 D. 5,420,000

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.

6) How much is the correct retained earnings in 2022?


A 8,960,000 B. 8,860,000 C. 8,600,000 D. 8,420,000
.

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