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Foy Corp. failed to accrue warranty costs of $50,000 in its December 31, 1992, financial statements. In
addition, a $30,000 change from straight-line to accelerated depreciation was made at the beginning of
1 993. Both the $50,000 and the $30,000 are net of related income taxes. What amount should Foy report
as prior period adjustments in 1993?

• A. $30,000
• B. $80,000
• C. $0
• D. $50,000

The effect of a change in accounting principle that is inseparable from the effect of a change in accounting
estimate should be reported:

• A. As a correction of an error.
• B. As a component of income from continuing operations, in the period of change and future periods if the
  change affects both.
• C. As a separate disclosure after income from continuing operations, in the period of change and future
  periods if the change affects both.
• D. By restating the financial statements of all prior periods presented.

If a company is not presenting comparative financial statements, the correction of an error in the financial
statements of a prior period should be reported, net of applicable income taxes, in the current:

• A. Income statement after income from continuing operations and before extraordinary items.
• B. Retained earnings statement as an adjustment of the opening balance.
• C. Retained earnings statement after net income but before dividends.
• D. Income statement after income from continuing operations and after extraordinary items.

On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment
required for these transactions. These treatments are:
. Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the
accounting change or error correction in the 1993 financial statements, and do not restate the 1992
financial statements.
. Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust
1 992 beginning retained earnings if the error or change affects a period prior to 1992.
. Prospective approach - Report 1993 and future financial statements on the new basis but do not restate
1 992 financial statements.
Item to Be Answered
As a result of a production breakthrough, Quo determined that manufacturing equipment previously
depreciated over 15 years should be depreciated over 20 years.
List B (Select one)

• A. Prospective approach.
• B. Cumulative effect approach.
• C. Retroactive or retrospective restatement approach.

An inventory loss from a market price decline occurred in the first quarter, and the decline was not
expected to reverse during the fiscal year. However, in the third quarter the inventory's market price
recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the
dollar amount of net inventory should:

• A. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
  by the amount of the decrease in the first quarter.
• B. Decrease in the first quarter by the amount of the market price decline and not be affected in the third
  quarter.
• C. Not be affected in either the first quarter or the third quarter.
• D. Decrease in the first quarter by the amount of the market price decline and increase in the third quarter
  by the amount of the market price recovery.