In which of the following situations should a company report a prior-period adjustment?

• A.The correction of a mathematical error in the calculation of prior years' depreciation.
• B.A change in the estimated useful lives of fixed assets purchased in prior years.
• C.The scrapping of an asset prior to the end of its expected useful life.
• D.A switch from the straight-line to double-declining balance method of depreciation.

Comment: *

Name: *

Email: *

Verification: *

Kell Corp.'s $95,000 net income for the quarter ended September 30, 1990, included the following aftertax
items:
. A $60,000 extraordinary gain, realized on April 30, 1990, was allocated equally to the second, third, and
fourth quarters of 1990.
. A $16,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized
on August 2, 1990.
In addition, Kell paid $48,000 on February 1, 1990, for 1990 calendar-year property taxes. Of this amount,
$ 12,000 was allocated to the third quarter of 1990.
For the quarter ended September 30, 1990, Kell should report net income of:

• A.$91,000
• B.$103,000
• C.$111,000
• D.$115,000

Correct Answer: A

Choice "a" is correct. $91,000 net income for the third quarter ended 9-30-90.
Rules: The entire amount of an "extraordinary" item should be reported during the period incurred.
A "cumulative effect" type accounting change is not included in the net income of the period of change;
instead, the beginning of the year retained earnings is restated.
Expenses, which benefit more than one interim period, such as property taxes, are allocated among the
periods benefited.

Comment: *

Name: *

Email: *

Verification: *

Is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial
statements for

• A.Option A
• B.Option B
• C.Option C
• D.Option D

Comment: *

Name: *

Email: *

Verification: *

Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 1994. The
cumulative effect of this change should be reported in Lore's 1994 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.

Comment: *

Name: *

Email: *

Verification: *

The following question is based on the following:
Vane Co.'s trial balance of income statement accounts for the year ended December 31, 2002, included
the following: Vane's income tax rate is 30%.

In Vane's 2002 multiple-step income statement, what amount should Vane report as income from
continuing operations?

• A.$126,000
• B.$129,500
• C.$140,000
• D.$147,000

Correct Answer: C

Choice "c" is correct, $140,000.

Comment: *

Name: *

Email: *

Verification: *