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Which of the following statements is correct regarding how the entity should value
inventory in the interim financial statements?
a. Gains from valuation in previous interim periods should be fully recognized
b. Only the cost method of valuation should be used.
c. Inventory losses generally should be recognized in the interim statements.
d. Temporary market declines should not be recognized in the interim statements.
3. How should an entity report the decision to change from cash basis to accrual basis?
a. As a prior period adjustment net of tax by adjusting the beginning retained earnings.
b. Prospectively, with no amounts related and no cumulative adjustment.
c. As an extraordinary item net of tax.
d. As a change in accounting estimate.
4. During the current year, the entity discovered it had overstated sales in the prior year. How
should the entity handle this issue?
a. Adjust current sales for the entire adjustment.
b. Spread the adjustment over future periods.
c. Spread the adjustment over current and future periods.
d. Restate the prior year financial statements presented for comparative purposes.
5. Which of the following characteristics does not relate to prior period adjustments?
a. They have a material effect on income from continuing operations of the prior year.
b. They can be specifically identified with business activity of a prior period.
c. They are attributable to economic events occurring subsequent to prior financial
statements.
d. They could not have been reasonably estimated in a prior period.
9. The employees accepted a termination offer which provided for lump sum payments and
future payments at the end of the next two years. The expense this year should include
a. The lump sum payments and the total of the future payments
b. One third of the lump sum payments and one third of the present value of the future
payments
c. Only the lump sum payments
d. The lump sum payments and the present value of the future payments
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