Chapter 22 - Accounting Changes and Error Analysis (True False)
When a company changes an accounting principle, it should report the change by reporting the cumulative effect of the change in the current year's income statement.
F
When changing from the equity method to the fair value method, a company must eliminate the balance in Unrealized Holding Gain or Loss
F
When companies make changes that result in different reporting entities, the change is reported prospectively
F
A change in accounting principle is a change that occurs as the result of new information or additional experience.
F
Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information
F
Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change
F
Companies account for a change in depreciation methods as a change in accounting principle
F
Companies report changes in accounting estimates retrospectively
F
Counterbalancing errors are those errors that take longer than two periods to correct themselves.
F
An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting principle that is applied retrospectively
T
Changing the cost or equity method of accounting for investments is an example of a change in reporting entity
T
Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.
T
Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period
T
Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.
T
For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.
T
If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered clearly acceptable
T
One of the disclosure requirements for a change in accounting principle is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented.
T
Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.
T
Retrospective application refers to the application of a different accounting principle to recast previously issued financial statements—as if the new principle had always been used.
T
When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.
T
