Chapter 13 Accounting Changes Prior period Errors

Retrospective adjustment

A change in accounting policy requires this kind of adjustment

C

An entity that change from an accounting principle that is not generally accepted to one that is generally accepted should report the effect of change, net of applicable income tax, in the current A. Income statement as component of income from continuing operations B. Income statement as component of discontinued operations C. Statement of retained earnings as an adjustment of the opening balance D. Statement of retained earnings after net income but before dividends

Retrospective application

Applying a new accounting policy to transactions as if that policy had always been applied

Prospective application

Applying a new accounting policy to transactions occurring after the date at which the policy is changed

Retrospective restatement

Means correcting the recognition, measurement, and disclosure of the amounts in the financial statements as if a prior period error had never occurred

C

The effect of a change in accounting policy that is inseperable from the effect of a change in accounting estimate should be reported A. by restating the financial statements of all prior periods presented B. As a correction of error C. As a component of income from continuing operations, in the period of change and future periods if the change affects both D. As a separate disclosure after income from continuing operations

Change in accounting policy

This arises when an entity adopts a generally accepted accounting principle which is different from the one previously used by the entity

B

Which of the following is characteristics if change in an accounting estimate? A. It usually need not be disclosed B. It does not effect the financial statements of prior period C. It should be reported through the restatement of the financial statements D. It makes necessary the reporting of proforma amounts for prior periods

B

If it is impracticable to determine the cumulative effect of an accounting change to any of the prior periods, the accounting change should be accounted for A. as a prior period adjustment B. on a prospective basis C. as a cumulative effect change on the income statement D. as an adjustment to retained earnings

B

Which of the following should be treated as change in accounting policy? A. A change is made in the method of calculating the provision for uncollectible accounts receivable B. Investment properties are now measured at fair value, having previously been measured at cost C. An entity engaging in construction contract for the first time needs an accounting policy to deal with it D. All of these qualify as change in accounting policy

D

Which of the following statements is correct regarding accounting changes that results in financial statements that are in effect the statements of a different reporting entity A. Cumulative effect adjustments should be reported as separate line item in the financial statements B. No restatements or adjustments are required if the changes involve consolidation method of accounting C. No restatements or adjustments are required if the changes involves the equity method of accounting D. The financial statements of all prior period presented are adjusted retrospectively

D

When an entity changed from straight line method of depreciation to double declining balance method, which of the following should be reported? A. Cumulative effect of change in accounting policy B. Proforma effect of retroactive application C. Prior period errors D. An accounting change that should be reported currently and prospectively

A

When it is difficult to distinguished between a change in accounting estimate and a change in accounting policy, the change is treated as A. Change in accounting estimate with disclosure B. Change in accounting policy C. Correction of error D. Change in accounting estimates with no disclosure