Accounting Changes and Error Corrections

Question 1

Error Correction

Answer 1

The understatement of year 1 and year 2 depreciation expense discovered in preparing the year 3 financial statements

Question 2

Prior Period Adjustment

Answer 2

reported retroactively by (1) correcting all prior period statements presented and (2) restating the beginning balance of retained earnings for the first period presented when the error effects extend to a period prior to that one

Question 3

Change in Accounting Estimate

Answer 3

A change in the expected service life of an asset because additional information has been obtained

Question 4

Change in Estimate Reporting

Answer 4

prospectively

Question 5

Accrual Accounting

Answer 5

recognized and reports the effects of transactions and other events on the assets and liabilities of a business enterprise in the time periods to which they relate rather than only when cash is received or paid. attempts to match revenues and the expenses associated with those revenues in order to determine net income for an accounting period.

Question 6

Error Correction: Multiple Periods

Answer 6

the cumulative effect of each error on periods prior to the period of discovery is calculated and recorded as a direct adjustment to the beginning balance of retained earnings.

Question 7

Error Correction: Single Period

Answer 7

may be corrected by reversing the incorrect entry and recording the correct one or by directly correcting the account balances with a single entry.

Question 8

Change in Estimate Disclosures

Answer 8

The effects of the change in estimate on income from continuing operations, net income, and related per share amounts should be disclosed in the period of the change or in future periods if the change affects those periods.