Accounting Changes

Question 1

How are changes in accounting principle applied?

Answer 1

Retrospective Application:Prior Periods adjustedRetained Earnings adjustedCompleted Contract to % CompletionEx: LIFO to FIFO

Question 2

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

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

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

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

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

What are the requirements for a prior period adjustment?

Answer 7

Effect is Material and identifiable in Prior Period

Couldn’t be estimated in Prior Periods

Question 8

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

Answer 8

Treated as a correction of an error. Cumulative effect of error is adjusted to the BB of assets and liabilities in the earliest period presented in the comparative statements. Correction of the error must be disclosed in footnotes

Question 9

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

How is a change in entity recorded?

Answer 10

Retrospective. All prior periods presented for comparative purposes must reflect the change. Disclosures are required. Changing to Consolidated Statements