Chapter 3: Income Statement Items

Question 1

What are the three types of accounting changes?

Answer 1

1. Change in accounting principle.
2. Change in accounting estimate.
3. Change in reporting entity.

Question 2

Change in Accounting Principles

Answer 2

• Adopts a generally accepted principle different from the one previously used.
• Changes the method of applying a generally accepted principle.
• Changes to a generally accepted principle when the principle previously used is no longer generally accepted.

Question 3

When is a retrospective application necessary for a change in accounting principles?

Answer 3

Required for all direct effects and related income tax effects of a change in principle.

Question 4

Change in accounting estimates

Answer 4

• Results from new information.
• Reassessment.
• Effects accounted for prospectively.
• Change in estimates inseparable from change in principle is accounted for as change in estimate.

Question 5

Change in Reporting Entity

Answer 5

1. Consolidated or combined statements replace those individual entities.
2. Consolidated statements include different subsidiaries, or
3. Combined statements include different entityies