Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2012, when it was acquired at a cost of $52 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2016 (before adjusting and closing entries). What is the appropriate patent amortization expense in 2016? (Do not round your intermediate calculation.)
$14.44 million.
$7.22 million.
$28.89 million.
$5.78 million.
Lundholm Company purchased a machine for $107,500 on January 1, 2014. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2016, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2016? The tax rate is 35%.
$28,667.
$18,634.
$19,350.
$21,500.
In 2016, internal auditors discovered that Fay, Inc., had debited an expense account for the $3,680,000 cost of a machine purchased on January 1, 2013. The machine's useful life was expected to be 23 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:
$160,000.
$320,000.
$3,680,000.
$480,000.
Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 35% income tax rate and that this was the only error it made.
If undetected, what is the effect of this error on Berkshire's 12/31/2015 balance sheet?
Assets understated by $600,000 and shareholders' equity understated by $600,000.
Assets understated by $390,000 and shareholders' equity understated by $390,000.
Assets understated by $600,000, liabilities understated by $210,000 and shareholders' equity understated by $390,000.
None of the above is correct.
Moonland Company's income statement contained the following errors:
Ending inventory, December 31, 2016, understated by $6,000
Depreciation expense for 2016 overstated by $1,900
What is the effect of the errors on 2016 net income before taxes?
Understated by $4,100.
Overstated by $7,900.
Overstated by $4,100.
Understated by $7,900.
Powell Company had the following errors over the last two years:
2014:
Ending inventory was overstated by $57,000 while depreciation expense was overstated by $25,300
2015:
Ending inventory was understated by $14,000 while depreciation expense was understated by $5,400.
By how much should retained earnings be adjusted on January 1, 2016? (Ignore taxes)
Increase by $33,900.
Decrease by $33,900.
Decrease by $31,900.
Increase by $43,000.
A company failed to record unrealized gains of $25 million on its available for sale security investments. Its tax rate is 35%. As a result of this error, comprehensive income would be (Round million answer to 2 decimal places.):
Understated by $16.25 million.
Understated by $8.75 million.
Understated by $25.00 million.
Unaffected.
A company failed to record unrealized gains of $27 million on its trading security investments. Its tax rate is 30%. As a result of this error, total shareholders' equity would be (Round million answer to 2 decimal places.):
Understated by $18.90 million.
Understated by $27.00 million.
Understated by $8.10 million.
Unaffected.
After issuing its financial statements, a company discovered that its beginning inventory was overstated by $240,000. Its tax rate is 35%. As a result of this error, net income was:
Understated by $84,000.
Understated by $156,000.
Overstated by $84,000.
Overstated by $156,000.
A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.8 million at the beginning of the year. Its tax rate is 40%. The company booked a year-end warranty liability of $4 million. As a result of this change, the firm would (Compute your answers in millions of dollars.):
Report a prior period adjustment decreasing retained earnings by $1,680,000.
Report a prior period adjustment decreasing retained earnings by $1,120,000.
Report a current period charge decreasing net income by $1,680,000.
Report a current period charge decreasing net income by $1,120,000.