Acctg Changes and Error Corrections

Question 1

Retrospective changes are…

Answer 1

Changes made to prior statements that effect beg retain earnings of the current statement. Made for changes in acc principles and changes in reporting entities.

Question 2

Restatements are…

Answer 2

The correction of the statement presented along with correcting the opening retained earnings balance. Made for accounting errors.

Question 3

Prospective changes are…

Answer 3

Applied to the current and future periods only, prior year statements are unaffected. Made for changes in accounting estimates and for accounting principles whose prior year effects impracticable.

Question 4

Some examples of accounting principle changes are…

Answer 4

Change in inventory valuation methods, accounting for LT construction contracts, change in method of application of LCM to inventory

Question 5

A change from cash basis accounting to accrual basis accounting would be classified as a change in accounting principle. TF

Answer 5

False, it would be considered correction of an error, as cash basis accounting is not allowed by GAAP.

Question 6

Details of retrospective changes need to be reported in the footnotes. TF

Answer 6

True

Question 7

Changes in depreciation methods would be considered a change in accounting estimate. TF

Answer 7

True

Question 8

Cumulative effects of accounting changes are measured as of the end of the year of change. TF

Answer 8

False, beginning and net of tax