Question

QUESTION 1

1. What is an excess dividend?

   		Dividends that liquidate retained earnings.
   		More money than we need in dividends.
   		Dividends that are taxed at a higher rate.
   		Dividends that result in deferred taxes.

3 points   

QUESTION 2

1. What is the retrospective approach for adjusting for changes in accounting principle?

   		Making the changes to the current and future years because of missing information.
   		Making the changes to the current and past year for comparison purposes.
   		Making the changes to the current and all prior years since the old principle was chosen.
   		Making the changes to the current and other years shown on the financial statements.

3 points   

QUESTION 3

1. On January 1, Year 2 Janik Corp. acquired a machine at a cost of $700,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's Year 2 financial statements. The oversight was discovered during the preparation of Janik's Year 3 financial statements. Depreciation expense on this machine for Year 3 should be

   		$280,000
   		$0
   		$140,000
   		$175,000

Answer 1

Ans 1

More money than we need in dividends.

Reason:- When company earns more money than it require for dividend, then it is called excess dividend.

Ans 2

Making the changes to the current and all prior years since the old principle was chosen.

Reason:- We adjust the expenditure because of change in accounting principle in current year for all prior period months.

Ans 3

Dep in year 3= 700000/5= 140000

Logic:-

Oversight of depreciation should not be done in current year as depreciation, rather it should be done in Year3 as prior period adjustment if possible.

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