Accounting Changes

Question 1

Financial

How are changes in accounting principle applied?

Answer 1

Retrospective Application: Prior Periods adjusted Retained Earnings adjusted Completed Contract to % Completion Ex: LIFO to FIFO

Question 2

Financial

Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate? How would it be applied?

Answer 2

A change of principle. Applied retrospectively.

Question 3

Financial

Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate? How would this change be applied?

Answer 3

A change in accounting principle. Applied retrospectively.

Question 4

Financial

How is a change in accounting estimate applied?

Answer 4

A change in accounting estimate is applied prospectively (going forward). No backwards adjustment is made.

Question 5

Financial

Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate? How would this change be applied?

Answer 5

Change in depreciation method would be a change in accounting estimate. It is applied prospectively.

Question 6

Financial

How is a correction of an accounting error made?

Answer 6

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements. The correction of the error must be included in the footnotes.

Question 7

Financial

What are the requirements for a prior period adjustment?

Answer 7

Effect is Material Is identifiable in Prior Period Couldn’t be estimated in Prior Periods

Question 8

Financial

How is a change from a non-GAAP accounting method to a GAAP method recorded?

Answer 8

It is treated as a correction of an accounting error. Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements Correction of the error must be included in the footnotes

Question 9

Financial

How does an inventory error effect the financial statements?

Answer 9

Effect on Ending Inventory : Effect on Net Income If one is overstated- both overstated. If one is understated- both understated. Misstating inventory corrects itself after TWO periods.

Question 10

Financial

How is a change in entity recorded?

Answer 10

Applied retrospectively. All prior periods presented for comparative purposes must reflect the change Footnote disclosures must be made Changing to Consolidated Statements