Chapter 22 - Accounting Changes and Error Analysis (True False)

When a company changes an accounting principle, it should report the change by reporting the cumulative effect of the change in the current year's income statement.

F

When changing from the equity method to the fair value method, a company must eliminate the balance in Unrealized Holding Gain or Loss

F

When companies make changes that result in different reporting entities, the change is reported prospectively

F

A change in accounting principle is a change that occurs as the result of new information or additional experience.

F

Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information

F

Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change

F

Companies account for a change in depreciation methods as a change in accounting principle

F

Companies report changes in accounting estimates retrospectively

F

Counterbalancing errors are those errors that take longer than two periods to correct themselves.

F

An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting principle that is applied retrospectively

T

Changing the cost or equity method of accounting for investments is an example of a change in reporting entity

T

Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.

T

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period

T

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

T

For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.

T

If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered clearly acceptable

T

One of the disclosure requirements for a change in accounting principle is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented.

T

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

T

Retrospective application refers to the application of a different accounting principle to recast previously issued financial statements—as if the new principle had always been used.

T

When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.

T