Chapter 1 income statement

Question 1

What happens when a change in accounting principle is considered inseparable from a change in estimate?

Answer 1

The change is handled as a change in estimate - prospectively. No cumulative effect adjustment is made

Question 2

How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?

Answer 2

As a component of income from continuing operations. - The effect is reported prospectively as a component of income from continuing operations

Question 3

How is a components operation (income/loss) reported at year end if it was sold during the year?

Answer 3

Once the decision has been made to dispose of a componenet of a business and that component meets the criteria to be classified as held for sale, the operating results are reported separately from continuing operations.

Question 4

How are prior period errors reported?

Answer 4

A correction of an error is reported as a prior period adjustment to retained earnings.

Question 5

How is the effect of a change in accounting principle shown?

Answer 5

It is shown as an adjustment to beginning retained earnings

Question 6

When is an impairment loss recognized?

Answer 6

The impairment loss is recognized the year in which it is held for sale.

Question 7

What periods does a change in accounting estimate affect?

Answer 7

The current and subsequent periods.

Question 8

How is a change in deprecation method handled?

Answer 8

The changes are treated as an estimate and handled prospectively. The new depreciation method should be used as of the beginning of the year.

Question 9

How would you calculate income from continuing operations in a multiple-step income statement.

Answer 9

Net of credits over debits * net of tax rate

Question 10

When should financial statements be restated?

Answer 10

They should be restated when there is a change in entity such as resulting from

• changing companies in consolidated financial statements
• Consolidated financial statements vs previous individual financial statements.

Question 11

When should a material transaction that is infrequent in occurrence but not unusual in nature be presented separately as component of income from continuing operations?

Answer 11

Always, weather a gain or loss a material transaction should be presented separately as a component of income from continuing operations.

Question 12

Where should the correction of an error be reported?

Answer 12

In the statement of retained earnings as an adjustment of the opening balance.

Question 13

What is the cumulative effect of a change in accounting principal

Answer 13

Equals the difference between retained earnings at the beginning of period of the change and what retained earnings would have been if the change was applied to all affected priod periods assuming comparative financial statements are not presented.

Question 14

What are the components to classify something as held for sale?

Answer 14

-management commits to a plan to sell the component
-The component is avialbabe for immediate sale in its present condition
-an active program to locate a buyer has been initiated
-the sale of the component si probable and the sale is expected to be completed within one year
the sale of the component si being actively marketed
-it is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn

Question 15

How are changes from non-GAAP/IFRS methods to GAAP/IFRS methods treated?

Answer 15

As an error correction by adjusting beginning retained earnings.

Question 16

What items are included in other comprehensive income?

Answer 16

• pension adjustments
• unrealized gains and losses
• foreign currency items
• effective portion of cash flow hedges

Question 17

How is a gain reported if it is both unusual and infrequent?

Answer 17

Under GAAP it should be reported as a separate component of income from continuing operations.

Question 18

Is a costs to relocate employees associated with exit and disposal activities?

Answer 18

Yes

Question 19

When is a liability recognized?

Answer 19

• an obligating event has occurred
• the event results in a present obligation to transfer assets or to provide service in the future
• the entitiy has little o rno discretion to avoid the future transfer of assets or providing services.

Question 20

Can a gain be reported as extraordinary under IFRS?

Answer 20

No

Question 21

Under IFRS what must an entity due when there is a change in accounting principle?

Answer 21

They must present three blanace sheets(End of current, end of prior, benning of prior), and two of each other financial statement. The cumulative effect adjustment is shown as an adjustment to beginging retained earnings on the balance sheet for the beginning of the prior period, which wuld be jan 1 of the prior year.

Question 22

What is included in revenue for single step income statment

Answer 22

Total revenue is all sales of goods, services, and rentals. Purchase discounts are not included in revenue, but instead reduce cots of goods sold.

Question 23

how is the cumulative effect of a change in accounting principle reported?

Answer 23

It is reporte net of tax as an adjustment to beginning retained earnings in the earliest year presented

Question 24

What should happen if an error is discovered that effects the prior two years FS?

Answer 24

Financial statements for the prior two years should be restated. The carrying amounts should be restated and will be displayed in the comparative financial statements.

Question 25

What should happen if a change in accounting estimate cannot be distinguished from a change in accounting principle?

Answer 25

The change is considered a change in accounting estimate treated as a change in accounting principle and is accounted for prospectively.

Question 26

How is a change in reporting entity treated?

Answer 26

Retrospectively, including notes, and application to all prior period financial statements