FAR Module 9C

Question 0

T/F

Corrections of errors are accounting changes

Answer 0

False
Corrections of errors are not accounting changes. Corrections of errors are done as prior period adjustments to the beginning balance of retained earnings, net of tax

Question 1

List the three kinds of accounting changes

Answer 1

changes in accounting principle
changes in accounting estimate
changes in reporting entity

Question 2

What term word is reserved only for describing corrections of errors to the financial statements

Answer 2

Restatements or restated

Question 3

Publicly traded companies are required to report how many years of comparative statements for the income statement and statement of cash flows

Answer 3

3

Question 4

Publicly traded companies are required to report how many years of comparative statements for the balance sheet

Answer 4

2

Question 5

What is a change from the use of one generally accepted accounting principle to another generally accepted accounting principles

Answer 5

This is a change in accounting principle

Question 6

What is the change of estimated financial statement amounts based on new information or experience

Answer 6

This is a change in estimate

Question 7

What is a change that results in the financial statements representing a different entity

Answer 7

This is a change in reporting entity

Question 8

What do you call the financial statement treatment where you report the cumulative effect of change in the carrying amounts of assets and liabilities as of the beginning of the first period presented, with an offsetting adjustment to the opening balance of retained earnings for that period. Financial statements for each period are adjusted to reflect period specific effects of the change for direct effects.

Another method is to report financial statements of all periods to show financial information for the new reporting entity for those periods.

Answer 8

This is retrospective application.

Question 9

For what type of accounting change do you use retrospective application

Answer 9

This is the treatment for a change in accounting principle or a change in reporting entity

Question 10

What is the financial statement treatment called where you report in the period of the change and future periods; you do not adjust financial statements of previous periods.

Answer 10

This is a prospective financial statement treatment

Question 11

For what type of accounting change do you use the prospective financial statement treatment

Answer 11

This is the treatment for a change in estimate

Question 12

This is the process of revising previously issued financial statements to correct an error

Answer 12

Restatement

Question 13

This is the application of a different accounting principle to previously issued financial statement as if that principle had always been used. This is required for changes in accounting principle and changes in reporting entity

Answer 13

Retrospective application

Question 14

These are the effects to the assets, liabilities, deferred income tax assets, deferred income tax liabilities, and impairment losses as a result of a new accounting principle

Answer 14

Direct effects

Question 15

These are any changes to current or future cash flows that result from making a change in accounting principle. Examples are royalties and profit-sharing.

Answer 15

Indirect effects

Question 16

Changes in depreciation, amortization, and depletion methods are treated as

Answer 16

changes in accounting estimates instead of changes in accounting principles

Question 17

Changes in percentages for bad debt expense or warranty expense are examples of what

Answer 17

Changes in accounting estimates

Question 18

Changes in salvage value or estimated useful life for depreciable assets are examples of what

Answer 18

Changes in accounting estimates

Question 19

Formula for straight line depreciation

Answer 19

(Historical cost - salvage value)/useful life

Question 20

Formula for Double Declining Balance Depreciation

Answer 20

(1/useful life)*2 = DDB%
(HC - Accumulated Depreciation) * DDB% = period 1 depreciation

Must recalculate each year

Question 21

A change in the inventory flow method (FIFO, LIFO, weighted average/moving average) is an example of what

Answer 21

A change in accounting principle

Question 22

A change in construction accounting method (such as percentage of completion versus a completed contract method) is an example of what

Answer 22

A change in accounting principle

Question 23

This is the difference between the old and new accounting principle since the company first started business until the beginning of the first period represented

Answer 23

The cumulative effect

Question 24

T/F

Indirect effects are part of the cumulative effect

Answer 24

False, only direct effects are part of the cumulative effect.

Indirect effects are reported in the period the change is made

Question 25

T/F

Retrospective treatment means that you apply the new accounting principle to the prior periods financial statements as if the new accounting principle had been used in those periods

Answer 25

True

Question 26

What are the three criteria of impracticability that you must meet to be able to apply a new accounting principle prospectively

Answer 26

1) after making every reasonable effort to apply the new principle retrospectively you are unable to do so
2) there are assumptions about managements intentions that cannot be independently substantiated
3) significant estimates are required and you cannot obtain objective information to make these estimates

Question 27

T/F

Converting from FIFO to LIFO is a classic case of impracticability where you are allowed to apply the new accounting principle prospectively rather than retrospectively

Answer 27

True

Question 28

Formula for calculating Purchases

Answer 28

P = Ending Inventory + CoGs - Beginning Inventory

Question 29

T/F

Purchases does not change when switching between two methods of measuring inventory

Answer 29

True

Question 30

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

Answer 30

The effect of a change in accounting principle which is inseparable from the effect of a change in accounting estimate should be accounted for as a change in accounting estimate

Question 31

If the cumulative effect of applying an accounting change can be determined but the period-specific effects on all periods cannot be determined the cumulative effect of the change should be applied how

Answer 31

To the carrying value of the assets and liabilities at the beginning of the earliest period to which it can be applied