Question

In: Accounting

Answer TRUE or FALSE for the below: a) Changing an estimated useful life for an item...

Answer TRUE or FALSE for the below:

a) Changing an estimated useful life for an item of depreciable property will likely entail restating financial statements of prior years.

b) Warranty expense is not recorded until the actual warranty work is performed.

c) Preferred stock has a "preference" ahead of common stock for both dividends and liquidation proceeds.

d) Salvage value is ignored during the early years of life for an asset that is to be depreciated under the straight-line method.

e) A manufacturer would include only raw materials and work in process in its balance sheet; finished goods would be transferred to the buyer.

f) Current liabilities are debts and obligations that will be paid within one year or the operating cycle, whichever is longer.

g) Treasury stock transactions typical produce losses in the income statement, but not gains.

h) Contingent liabilities should be recorded in the accounts when it is possible the future event will occur and the amount of the liability can be reasonably estimated.

i) A corporation is created by obtaining a charter from the federal government.

j) Payroll withholdings are current liabilities to an employer.

Expert Solution

A) False.

Explanation: Changes in Accounting Estimates must be accounted for prospectively in the financial statements, i.e. the effects of the change must be incorporated in the accounting period in which the estimates are revised. Therefore, carrying amounts of assets and liabilities and any associated expense and gains are adjusted in the period of change in estimate. (IAS 8: Changes in Accounting Estimates)

B) False

Explanation: Warranty expense will be recorded on an estimated basis.

C) True

D) False

Explanation: Under straight line depreciation, (cost - salvage) at the time of asset purchase is depreciated over the estimated life of the asset.

E) False

Explanation: Manufacturer will also include unsold finished goods (inventory) in its balance sheet

F) True

G) False

Explanation: The Treasury stock (repurchase of shares from open market) does not affect the income statement. The gain / losses are recorded in the other comprehensive income.

H) True

I) False

Explanation: A Corporation can also be formed through registration

J) True

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