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In which of the following situations should a company report a prior-period adjustment?
Choice 'b' is correct. Prior period adjustments consist of: corrections of errors in the financial statements of prior periods, retroactive restatements required by new GAAP pronouncements, and changes from a non-GAAP method of accounting to a GAAP method of accounting (which are corrections of errors).
Choice 'a' is incorrect. This change is a change in accounting estimate.
Choice 'c' is incorrect. This change is a change for one GAAP method of depreciation to another GAAP method of depreciation. Under SFAS No. 154, it is treated as a change in accounting estimate effected by a change in accounting principle and is handled prospectively, and not as a prior-period adjustment.
Choice 'd' is incorrect. This is a business activity ordinary in nature.
In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment?
Choice 'a' is correct. A segment is considered reportable if its reported revenue, including sales to unaffiliated customers and intersegment sales, is 10% or more of the combined revenue (unaffiliated and intersegment) of all operating segments.
Choices 'b', 'c', and 'd' are incorrect, per the above Explanation: .
Development-Stage Enterprises
Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements?
Choice 'd' is correct. The summary of significant accounting policies should include 'policies.' The only policy in the choices listed is the revenue recognition policies.
Choice 'a' is incorrect. A description of current year equity transactions is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies.
Choice 'b' is incorrect. A summary of long-term debt outstanding is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies.
Choice 'c' is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere in the footnotes but not in the summary of significant accounting policies.
Conn Co. reported a retained earnings balance of $400,000 at December 31, 1991. In August 1992, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 1991, had been paid and fully expensed in 1991. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 1992 statement of retained earnings?
Choice 'b' is correct. $428,000 net of tax.
Coffey Corp.'s trial balance of Income Statement Accounts for the year ended December 31, 1988 as follows:
Coffey's income tax rate is 30%. The gain on debt extinguishment is considered a usual and recurring part of Coffey's operations. The hurricane is considered an unusual and infrequent event. Coffey prepares a multiple-step income statement for 1988.
Net income is:
Choice 'a' is correct. $140,000.
Net income is the 'bottom line' amount after all has been considered on the income statement. Without showing all the line items as required for the income statement, the 'bottom line' amount of $140,000 is derived as follows:
