BY NO MEANS is this sample exam indicative of what contents will be covered or not covered in the exam. 1. Retrospective restatement usually is not used for a: A) Change in accounting estimate. B) Change in accounting principle. C) Change in entity. D) Correction of error. 2. Which of the following changes is not usually accounted for retrospectively? A) Change from expensing extraordinary repairs to capitalizing the expenditures. B) Change from FIFO to LIFO. C) Change in the composition of firms reporting on a consolidated basis. D) Change from LIFO to FIFO. 3. Which of the following is not an example of a change in accounting principle? A) A change in the useful life of a depreciable asset. B) A change from LIFO to FIFO for inventory costing. C) A change to the full costing method in the extractive industries. D) A change to the equity method of accounting for investments. 4. JFS Co. changed from straight-line to double-declining-balance depreciation. The journal entry to record the change includes: A) A credit to accumulated depreciation. B) A debit to accumulated depreciation. C) A debit to a depreciable asset. D) The change does not require a journal entry. 5. Orange Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. The residual value is expected to be $4 million. At the beginning of 2018, Orange decided to change to the straight-line method. Ignoring income taxes, what will be Orange's depreciation expense for 2018? A) $4.8 million. B) $5.4 million. C) $6.6 million. D) $9.4 million. 6. In 2018, internal auditors discovered that Fay, Inc., had debited an expense account for the $700,000 cost of a machine purchased on January 1, 2015. The machine's useful life was expected to be five years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of: A) $140,000. B) $280,000. C) $420,000. D) $700,000. 7. Popeye Company purchased a machine for $300,000 on January 1, 2017. Popeye depreciates machines of this type by the straight-line method over a five-year period using no salvage value. Due to an error, no depreciation was taken on this machine in 2017. Popeye discovered the error in 2018. What amount should Popeye record as depreciation expense for 2018? The tax rate is 40%. A) $120,000. B) $60,000. C) $36,000. D) $72,000. 8. Green Company overstated its inventory by $50 million at the end of 2018. The discovery of this error during 2019, before adjusting or closing entries, would require: A) An increase in retained earnings. B) A prospective adjustment in the 2019 income statement. C) A debit to inventory of $50 million. D) None of these answer choices are correct. 9. Early in 2018, Ashland Granite discovered that a five-year insurance premium payment of $750,000 at the beginning of 2015 was debited to insurance expense. The correcting entry would include: A) A debit to prepaid insurance of $750,000. B) A debit to insurance expense of $300,000. C) A debit to prepaid insurance of $450,000. D) A credit to retained earnings of $300,000. 10. Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax liability? A) Depreciation early in the life of an asset. B) Unrealized losses from recording investments at fair value. C) Rent collected in advance. D) None of these answer choices are correct. 11. Which of the following circumstances creates a future deductible amount? A) Earning of non-taxable interest on municipal bonds. B) Sales of property (installment method for tax purposes). C) Prepaid advertising expense. D) Accrued warranty expenses. 12. For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Pretax accounting income Permanent difference Temporary difference-depreciation Taxable income $ 300,000 (15,000) 285,000 (20,000) $ 265,000 Tringali's tax rate is 40%. Assume that no estimated taxes have been paid. What should Tringali report as its deferred income tax liability as of the end of its first year of operations? A) $35,000. B) $20,000. C) $14,000. D) $8,000. 13. Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was: A) $5,000. B) $6,000. C) $10,000. D) $11,000. 14. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? A) Depreciation on equipment. B) Accrual of warranty expense. C) Life insurance premiums for the payer's benefit. D) Rent revenue received in advance. 15. At December 31, 2018, Moonlight Bay Resorts had the following deferred income tax items: Deferred tax asset of $54 million related to a current liability Deferred tax asset of $36 million related to a noncurrent liability Deferred tax liability of $120 million related to a noncurrent asset Deferred tax liability of $72 million related to a current asset Moonlight Bay should report in its December 31, 2018, balance sheet a: A) Noncurrent deferred tax asset of $90 million and a non-current deferred tax liability of $192 million. B) Current deferred tax liability of $18 million. C) Noncurrent deferred tax asset of $84,000 and a non-current deferred tax liability of $45 million. D) Noncurrent deferred tax liability of $102 million. 16. Alamo Inc. had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was: A) $390 million. B) $210 million. C) $150 million. D) $180 million. 17. Information for Kent Corp. for the year 2018: Reconciliation of pretax accounting income and taxable income: Pretax accounting income Permanent differences Temporary difference-depreciation Taxable income $ 180,000 (15,000) 165,000 (12,000) $ 153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2017 As of December 31, 2018 $ 13,000 $ 25,000 The enacted tax rate was 30% for 2017 and thereafter. What should be the balance in Kent's deferred tax liability account as of December 31, 2018? A) $5,200. B) $7,500. C) $25,000. D) None of these answer choices are correct. 18. Giada Foods reported $940 million in income before income taxes for 2018, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2018 was 35%, but the enacted rate for years after 2018 is 40%. The balance in the deferred tax liability in the December 31, 2018, balance sheet is: A) $16 million. B) $35 million. C) $40 million. D) $56 million. 19. Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed. What is Bumble Bee's pretax accounting income? A) $4,400. B) $3,600. C) $9,600. D) $2,600.
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