Correct Answer: A

Choice "a" is correct. Extraordinary items are reported as a component of net income, after income from continuing operations and discontinued operations. Choice "b" is incorrect. An extraordinary gain (or loss) only indirectly affects comprehensive income as a component of net income. Choice "c" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations. Choice "d" is incorrect. Extraordinary items are reported net of tax after income from continuing operations and discontinued operations.

Correct Answer: A

Choice "a" is correct. The cumulative effect of a change in accounting principle is shown as an adjustment to beginning retained earnings. Choice "b" is incorrect. The cumulative effect of a change in accounting principle is now presented as a separate category on the retained earnings statement and is not a component of net income. Choice "c" is incorrect. Extraordinary items are unusual and infrequent in nature. Extraordinary items have nothing to do with changes in accounting principle. Choice "d" is incorrect. A change in accounting principle affects retained earnings, not the income statement, under SFAS No. 154.

Correct Answer: A

Choice "a" is correct. General and administrative expenses include:

Freight-in is part of cost of sales; freight-out is a selling expense; and sales salaries are selling expenses. Choice "b" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses. Choice "c" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses. Choice "d" is incorrect. Freight-in is part of cost of inventory; freight-out is a selling expense; and sales salaries are selling expenses.

Correct Answer: B

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.

Correct Answer: C

Choice "c" is correct. Comprehensive Income includes all items included in "Net Income" plus "Other Comprehensive Income" items. Since the $50,000 extraordinary gain is already included in Net Income, Comprehensive Income is:

Correct Answer: B

Choice "b" is correct. Disclosure of accounting policies (and all other disclosure also) is an integral part of the financial statements. Choice "a" is incorrect. For disclosure of accounting policies, disclosure should not be limited to principles and methods peculiar to the industry in which the company operates. All material accounting policies should be disclosed. Choice "c" is incorrect. For disclosure of accounting policies, the format and location of accounting policies are not fixed by GAAP. Accounting policy disclosures are normally Note 1, but that is a (reasonable and very general) practice and not a "rule." It does make sense to disclose the "why" before the "what." Choice "d" is incorrect. Disclosure of accounting policies should not duplicate details disclosed elsewhere in the financial statements. Interim Financial Reporting

Correct Answer: A

Choice "a" is correct. A change in the valuation technique used to measure fair value is a change in accounting estimate. Choice "b" is incorrect. Per SFAS No. 157, a change in valuation technique is a change in accounting estimate, not a change in accounting principal. Choice "c" is incorrect. Although a change from the cost approach to the market approach is a change in valuation technique, a change in valuation technique is not defined as a type of accounting change, but instead falls into the category of changes in accounting estimate. Choice "d" is incorrect. Both the market approach and the cost approach are acceptable methods of measuring fair value per SFAS No. 157; therefore, switching between these methods is not the correction of an error. Additionally, an error correction is not a type of accounting change.

Correct Answer: D

Choice "d" is correct. Yes - No. Predictive value is an ingredient of relevance but not of reliability.

Memorize:

Bud's relevance to "PFT."

Bud's reliability to "VRN."

Correct Answer: A

Note: 1/2 of the office space of $240,000 was used by the sales department, which should be allocated to

"selling expenses" (not general and administrative).

Choice "a" is correct. $290,000.

Correct Answer: C

Choice "c" is correct. Expensing insurance premiums when paid (rather than allocating them to the periods benefited) is a correction of an error in previously presented financial statements.