chapter 20

Which of the following are considered a change in reporting entity?

-Changing specific companies that are included in the consolidated statements. -Presenting consolidated financial statements in place of individual statements.

Which of the following situations would be an appropriate reason for an accounting principle change?

Changes in related economic conditions

In year 2, Rossman Corp. changed its inventory method from FIFO to the weighted-average method. The change resulted in a decrease in beginning inventory for year 2 of $10,000. What were the income statement effects of this change?

Earnings per share for year 1 decreased.

When is the prospective approach used in accounting changes?

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

If it is impracticable to measure the period-specific effects of a change in accounting principle, what approach is used?

Prospective

What method is used to account for a change in accounting estimate?

Prospective application

What approach is used to account for a change in depreciation method?

Prospective approach

What is the approach used for an error correction?

Restatement of previous years' financial statements

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

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

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.

A change in depreciation method is treated as a(n)

change in accounting estimate.

For U.S. GAAP, which of the following are considered accounting changes?

change in reporting entity change in accounting principle change in accounting estimate

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 net income cost of goods sold

When a new accounting standard is applied to the adoption period and an adjustment is made to the balance of retained earnings at the beginning of the adoption period, the ______ approach is used.

modified retrospective

Accounting changes include changes in

principles, estimates, or entities.

When it is impracticable to measure the period-specific effects of a change in accounting principle

prospective

After a recent acquisition, Joann Inc. issues consolidated financial statements for the first time. Joann should report the acquisition as a change in _____.

reporting entity

If a company discovers an error in previously issued financial statements, it must

restate the financial statements.