In 2013, Due to a Change in Marketing Forecasts, Barney

question 50

Multiple Choice

In 2013, due to a change in marketing forecasts, Barney Corporation reduced the projected life of its patent for producing round dice. The cumulative patent amortization prior to 2013 would have been $10 million higher had the new life been used. Barney's tax rate is 30%. Barney's retained earnings as of December 31, 2013, would be:

• A)Overstated by $7 million.
• B)Overstated by $3 million.
• C)Overstated by $10 million.
• D)UnaffecteD.This is a change in estimate.No prior period adjustment is needed.

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Definitions:

Net Operating Income

A measure of a company's financial performance, calculated as revenues minus expenses from operations, not including non-operating income and expenditures.

Operating Assets

Assets employed in the day-to-day operations of a business that are expected to generate economic benefits, including both current and non-current assets.

Transfer Price

The price charged by one division of a company for products or services that it supplies to another division within the same company.

Valve Division

A specialized department or segment of a company focused on the production and distribution of valves.