Learning Chapter 20

In year 1, Claire miscounted ending inventory and understated ending inventory by $10,000. The error was discovered in year 2. Ignoring tax effects, the entry to record this error would include which of the following? A. credit inventory $10,000. B. Debit COGS $10,000 C. Debit Inventory $10,000 D. Credit Retained earnings $10,000.

C. Debit Inventory $10,000 AND D. Credit Retained earnings $10,000.

An accounting error occurs when a transaction is recorded incorrectly, and an accounting _____ occurs when a different accounting principle is used.

Change

In year 2, Rossman Corp. changed its inventory method from FIFO to the weighted-average method. The change resulted in a decreased 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.

Glimmer Corp. miscounts and overstates its ending inventory in year 1 by $10,000. Ignoring tax effects, what are the financial statement effects of this error in year 1?

Overstate assets $10,000 and Overstate net income $10,000

When it is impracticable to measure the period-specific effects of a change in accounting principle, the _____ approach should be used.

Prospective

Retrospective application for a change in accounting principle requires that

an adjustment is made to retained for the earliest period presented.

The prospective approach for reporting a change in accounting principle requires that

no change is made to previous years' financial statement

Change in accounting estimate

prospective application

A change in accounting estimate is accounted for using the ______ ________

prospective approach

Accounting error

restatement of financial statements

The retrospective approach used for a change in accounting principle requires that financial statements are

revised in previous years to reflect the change.

In the first set of financial statements after the change is made, a disclosure note is needed to:

Provide justification for the change. Point out that comparative information has been revised. Report any per share amounts affected for the current and all prior periods presented.

Which of the following are changes in accounting estimates? a. Change in the percentage of bad debts. B. Change in useful life of a depreciable asset. C. change in inventory method. D. Adoption of a new FASB standard.

a. Change in the percentage of bad debts. AND B. Change in useful life of a depreciable asset.