Accounting Changes and Errors Flashcards
Jones books a receivable in Year 1 and cash is collected in Year 2, but the company does not book revenue until Year 3.
Type of Change?
Year 2 Impact?
Error Correction
Beginning Retained Earnings Only
After using FIFO in Years 1 and 2, Jones changes its inventory method to LIFO beginning in Year 3.
Type of Change?
Year 2 Impact?
Change in Accounting Principle
None
Inventory is identified as obsolete and written off during a Year 3 equipment review.
Type of Change?
Year 2 Impact?
Change in Accounting Estimate
None
In Year 3, Jones acquires 100% of the outstanding stock of a company that is previously accounted for using the cost method.
Type of Change?
Year 2 Impact?
Change in Accounting Entity
Beginning Retained Earnings and Current Earnings
A large tax accrual adjustment related to Year 2 that impacts the balance sheet and income statement is identified during Year 3.
Type of Change?
Year 2 Impact?
Change in Accounting Estimate
None
A new FASB Standard is implemented in Year 3, which requires Jones to change how it accounts for probable future charges.
Type of Change?
Year 2 Impact?
Change in Accounting Principle
Beginning Retained Earnings and Current Earnings
In Year 2, Jones went from 30% ownership to 60% ownership of a subsidiary.
Type of Change?
Year 2 Impact?
Change in Accounting Entity
Beginning Retained Earnings and Current Earnings
The company calculates depreciation of $250,000 in Year 2, but realizes after the books are closed that it should have been $225,000.
Type of Change?
Year 2 Impact?
Error Correction
Current Earnings Only
Dawg Corp. changed its inventory valuation method from FIFO to LIFO to more fairly reflect the cost flow of goods.
Type of Change?
Method of Accounting?
Change in Accounting Principle
Prospective
Duck Company changed from the income tax basis of accounting to the full accrual basis of accounting, as required by its bank in order to obtain financing.
Type of Change?
Method of Accounting?
Correction of an Accounting Error
Restate Prior Periods
Gosling, LLC was acquired by Goose International. Goose presents consolidated financial statements.
Type of Change?
Method of Accounting?
Change in Accounting Entity
Retrospective
Build Big, Inc., a construction company, decided to improve shareholder return and stimulate the company’s stock price by changing its method of accounting for long-term contracts from the completed contract method to the percentage of completion method.
Type of Change?
Method of Accounting?
Not an Acceptable Change in Accounting
No Change
The final judgment on a lawsuit is decided in the current year against Big Trouble, Inc. The amount is significantly greater than previously thought. The company properly accrued $1 million as a liability on their previous financial statement. The final judgment is for $15 million.
Type of Change?
Method of Accounting?
Change in Accounting Estimate
Prospective
