F2 M2

Question 1

a change in accounting estimate

Answer 1

is reported in the current and subsequent years

Question 2

a change in accounting principle

Answer 2

shown net of tax and restated in prior year financials on retained earnings statement

Question 3

when the change in accounting principle is inseparable from a change in estimate

Answer 3

reporting treatment is a change in estimate

Question 4

whenever it is impossible to determine a change in accounting principle or estimate

Answer 4

the change is considered an accounting estimate and accounted for prospectively

Question 5

a correction of an error

Answer 5

reported as a prior period adjustment to retained earnings

Question 6

examples of corrections of an error

Answer 6

1) mathematical mistakes
2) mistakes in application of U.S. GAAP
3) oversight or misuse of facts
4) cash basis to accrual basis

Question 7

examples of accounting principle changes

Answer 7

1) change from LIFO to FIFO
2) change in reporting entity

Question 8

examples of accounting estimate changes

Answer 8

1) changes in accting principle inseparable from change in estimate
2) warranty cost estimates
3) changes in lives of fixed assets
4) adjustments of YE accrual of officer’s salaries and/or bonuses
5) write-downs of obsolete inventory
6) material, non-recurring IRS adjustments
7) settlement of litigation
8) revisions of estimates regarding discontinued operations

Question 9

when it’s impracticable to estimate

Answer 9

if difficult to calculate cumulative effect of change then change is handled prospectively

ex. other cost flow assumption to LIFO

Question 10

note about accumulated depreciation

Answer 10

booked at the gross level, not net of tax
so when there is an error in depreciation, record gross amt of depreciation

Question 11

note about depreciation expense

Answer 11

should reflect the appropriate expense amt for the current year and should not be used to fix prior period errors