orion chapter 22

reporting changes currently, retrospectively, and prospectively

There are three approaches for reporting changes in accounting principles, what are they?

changing the companies included in combined financial statements.

A change in reporting entity occurs when?

cumulative effect

A new accounting method has been adopted by Trist Company. what would be the correct term for the difference between prior years' income with the new method and prior years' income determined by the old method?

lower reported income

Accounting methods chosen as the result of political costs often result in?

indirect effect of an accounting change

Any change to current or future cash flows of a company that result from making a change in accounting principle that is applied retrospectively, is seen as an?

asset, liability, or stockholders' equity account.

Balance sheet errors affect only the presentation of an?

comparability and consistency

Changes in accounting can negatively affect both

retrospective

Companies are required by the FASB to use the _______________approach for most changes in principle.

3

Companies should NOT use retrospective application if any of the ________ conditions are met.

income statement and the balance sheet.

Counterbalancing errors generally involve errors that impact?

liquidity

Creditors can be influenced by a company's strong ___________ position.

3

How many types of accounting changes are in the reporting framework established by the FASB?

as a prior period adjustment

How should failure to record depreciation expense in a given year be accounted for?

the disclosure of indirect effects

IFRS not address in terms of accounting changes?

prior

If a company cannot determine the ___________ period effects, then they should NOT use retrospective application.

equity

If a company changes the _________ , cost, or consolidation method of accounting for their subsidiaries and investments, it would be considered a change in reporting entity.

increase the company's net income

If a company chooses an accounting method due to its capital structure, this will most likely result in an accounting method that will?

change

If an estimate is later proved to be incorrect, then the company will consider this as _________ a in estimate.

Prospective

If retrospective application of a change in accounting principle requires assumptions about management's intent in a prior period, then the approach that should be used to account for the change is

no entry

If the books have already been closed for the current year, and the error that was made is already counterbalanced, then ________ is required.

extraordinary

In cases of changes in reporting entities, the company should report the impact of the change on income before _____________ items, net income, and earnings per share.

They will consider it a change in estimate

In cases where it is impossible to determine if the change that has occurred is a change in estimate or a change in principle, which of the following will a company do?

reporting entity

In terms of consolidated financial statements, changing the subsidiaries for which they are prepared would be a change in the?

year

In the ________ during which a company changed a reporting entity, it will need to explain the nature and reason for the change in the financial statements.

change in accounting estimate

Pam's company orginally estimated the useful life of a machine to be five years. However, they have recently changed that estimate to six years. What type of change is this?

change is estimate

The type of accounting change that should always be accounted for in current and future periods is a?

counterbalancing errors

Restatement of comparative financial statements is necessary even if a correcting entry is not required, when working with?

retrospective

The FASB prohibits ____________ treatment of changes in accounting estimates.

inventory

The costs of raw materials, labor, and overhead are all included in?

beginning balance of the earliest year presented

The cumulative effect of a change in accounting principle is reported on the retained earnings statement as an adjustment to the?

cumulative

The effect ____________represents the change in prior years' income after a new accounting method has been implemented.

restatement

The process of revising previously issued financial statements to reflect the correction of an error is called

reporting entities

The retrospective approach is used in cases where there are changes made to?

equity

When EPS or restricted stock are improperly accounted for, it affects —other.

Capital Structure

When _______________________is a deciding factor in choosing an accounting method companies often choose methods that will increase their net income.

accounting estimate

When a company changes the orignal estimate for the useful life of a depreciable asset, this is a change in?

political costs

When a company seeks out an accounting method that will work to decrease the income being reported, it is generally the result of which of the following reasons?

Compairability

When a company uses the current approach, a loss of___________ results.

in the future

When changes are reported prospectively, they are reported?

retrospective application

When prior period effects cannot be determined, what should not be used?

indirect

When__________ effects occur as the result of an accounting change, they do not change prior period amounts

balance sheet errors

Which type of errors typically only affect the presentation of an asset, liability, or stockholders' equity account?

income statement errors

error has no impact on net income?

investers

can often be influenced by a favorable profit picture?

depreciation charge

determined by dividing the book value of an asset by its remaining service life?

the cumulative effect of the change on retained earnings

needs to be shown when considering a change in accounting principles?

a loss of comparability

occurs as a result of the current approach?

misclassification of balances

the LEAST significant error that can occur on a financial statement?

taxes

what is NOT something that would be changed on the financial statements if a company changed its inventory valuation method?

It is not as significant to investors as other errors

what is true of an error involving the misclassification of balances on a financial statement?

it requires no restatement of prior years' income

what true of a change to LIFO inventory valuation from any other acceptable inventory valuation method?

adoption of the retrospective approach

whatc ontibutes to international accounting convergence?