Acct 387: Smartbook 20

Which of the following are considered a change in accounting principle?

Change from the cost to equity method Adopt a new FASB standard

Which of the following is a change in accounting estimate?

Change in inventory method

Which of the following are changes in accounting estimates?

Change in useful life of a depreciable asset. Change in estimate of periods benefited by intangible asset.

When is the prospective approach used in accounting changes?

For a change in accounting estimate. For a change in accounting principle if it is impracticable to determine the effect of the change on previous years.

When a company changes its inventory method from LIFO to FIFO, what accounts are affected in the comparative financial statements?

Income tax payable Retained earning COGS Inventory

Which of the following are requirements for the correction of an accounting error?

Prepare a journal entry to correct the error. Restate previous years' financial statements that are incorrect. Disclose the nature of the error and the impact of the error on net income.

When a company changes accounting methods and the effects of the change can be calculated for each period, which of the following occurs?

The adjusted net income for each year is shown on the retained earnings statement for that year. Retained earnings is adjusted for the earliest period presented.

Which of the following are acceptable reasons for an accounting change?

To apply a new method that is more appropriate To be consistent with others in the industry

In year 2, Rogers Corp. changes its inventory method from FIFO to the weighted-average method. Under the weighted-average method, the year 2 beginning inventory is $5,000 lower than under the FIFO method. The financial statements are revised using the retrospective approach. What are the financial statement effects of the change in accounting principle?

Year 1 net income will decrease Year 1 ending inventory will decrease

Modified retrospective application for a change in accounting principle requires that the new standard is applied to the adoption period and

an adjustment is made to retained earnings at the beginning of the adoption period

Which items are considered a correction of an error when the financial statements are adjusted?

change from the cash basis of accounting to accrual basis failing to record a transaction mathematical mistakes

Candy changes inventory methods in year 2, resulting in a $20,000 increase to beginning inventory in year 2. The tax rate is 40%. The journal entry required to record the change in accounting principles will require

debit to inventory for $20,000 credit to retained earnings for $12,000

An example of a change in accounting estimate that is effected by a change in accounting principle is a change in

depreciation methods

Accounting changes in due changes in accounting ( ), in accounting ( ), and in reporting entity.

principle; estimate

Failure to record an adjusting entry is a change that requires a:

correction of error

Crane Corp. changes its inventory method from FIFO to the weighted-average method. Which items will be affected on the income statement?

earnings per share cost of goods sold net income