Accounting changes and errors

How do you report a change in accounting principles only?

Cumulative-effect adjustment to retained earnings, which is treated retrospectivley

Prospectivly=

Estimate changes

Inventory valuation method change is (change in estimate, principle, error)

Principle (not like dep)

Prior period adjustments are limited to corrections of errors affecting

prior-year net income

if retrospective then report adjustment to

retained earnings

The asset retirement obligation is recorded as a debit to

the natural resources account (depletion base) and a credit to a liability.

Accretion Expense =

ARO balance x the interest rate at INITIAL measurement (at the credit-adjusted risk-free rate)

If a question is asking about changing the beginning retained earnings, what is it talking about

An Error to a prior period. Make sure to look at the options and select the one that is original in relation to Errors or a change in accounting Principles.

Cumulative effect of a change=

Change in Accounting Principle

Prior Period AJE=

Error Correction

How should a company report its decision to change from a cash-basis to an accrual-basis of accounting? (estimate, accounting principle, fix error)

Fix error (As a Prior period adjustment (net of tax), by adjusting the beginning balance of retained earnings.)

Choose the best description of accretion expense associated with an asset retirement obligation. (Interest expense, Finance Charge, Growth in Asset Retirement Obligation, Depletion Expense)

Growth in Asset Retirement Obligation

If a Depreciation Error has occured in the prior period how is it fixed

It is fixed in the retained earnings but does not affect the depreciation Expense

If an error is found in yr 1 financials and carries forward to yr 2 but it is not found till year 3 what needs to happen to fix the financials

The financial statements for years 1 and 2 should be restated; the cumulative effect of the error on years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of year 3.

Accretion Expense is

This Increases ARO(Asset Retirement Obligation), it is the retirement and disposal of assets like a mine, nuclear power plant or other type of environmental impact causing assets. The expense is considered an operating expense NOT INTEREST EXPENSE

When an accounting principle change cannot be distinguished from an estimate change, it is accounted for as

an estimate change. Changes in accounting estimate are accounted for currently and prospectively and are reported in income from continuing operations. The relevant accounts affected by the change are adjusted for the current and future years. The change is not retroactively applied.

Change in Depreciation is classified as (estimate change, change in error, or change in accounting principles)

estimate change

change in estimate is usually

prospective, you cannot go back into prior years because the knowledge was not known

A change in depreciation method is treated as a change in estimate with the remaining book value at the beginning of the year of change being subject to the new method for the remainder of the asset's life. No cumulative effect is reported.

so if it asks what is the cumulative effect of this change, it is still 0 because it is prospective.