Accounting Changes and Error Corrections (F1:M6) Flashcards
what is a change in the method of depreciation, amortization, or depletion considered and how should it be accounted for?
a change in principle and estimate.
accounted for prospectively, as a change in estimate
changes in estimates affect only what?
current and subsequent periods
if depreciation was understated in the prior year, what can be done in the current year to correct it?
credit accumulated depreciation for the appropriate amount
unrealized G/L resulting from changes in market value of available-for-sale debt investments should be reported as a component of what kind of income and where?
other comprehensive income in shareholders’ equity
unrealized G/L on debt investments held for trading debt securities and equity investments should be included in what income?
net income
under GAAP, when making a change to LIFO how is the change accounted for?
prospectively; therefore, no cumulative effect adjustment is made.
begin inventory of the year of change is the first LIFO layer
the cumulative effect of change in accounting principle is determined as of when if comparative FS are not presented?
the beginning of the year of change
an understatement of ending inventory results in what?
an overstatement of COGS; therefore, an understatement of NI
T or F, if comparative FS are presented and a change of reporting entity has occurred, all previous FS that are presented in the comparative FS should be restated.
T
the cash basis of financial reporting is not GAAP; therefore, it would be considered what?
an error
what is the retained earnings formula?
beginning RE
+net income during the period
-dividends paid
=ending RE
what situations are considered changes in accounting estimates? (not obvious ones)
write-downs of obsolete inventory
settlement of litigation
changes in accounting principle that are inseparable from change in estimate
under IFRS, when an entity disclosing comparative info applies an accounting principle retroactively or makes a retrospective restatement what must the entity do?
How would the cumulative effect adjustment be shown?
3 BS (end of current period, end of prior period, begin of prior period) 2 of each other FS (current period and prior period)
as an adjustment of the begin RE on the BS for the begin of the prior period
to increase RE you would ___, to decrease you would ___?
credit; debit
when the income statement is closed out, what happens to net income?
it gets pushed into RE (i.e., becomes part of RE)
