Lesson 18

Question 1

What items requires estimates? (7)

Answer 1

1. Uncollectible receivables
2. Inventory obsolescence
3. Useful life and salvage value of assets
4. Periods benefited by deferred costs
5. Liabilities for warranty costs and income taxes
6. Recoverable mineral reserves
7. Change in depreciation methods

Question 2

When should companies account for the effects of all changes in estimates?

Answer 2

1. in the period of change if the change affects that period only or,
2. the period of change and future periods if the change affects both.

Question 3

What kind of changes should companies disclose?

Answer 3

A change in estimate that affects severals period. If a company has a change in estimate affected by a change in principle, it must disclose why the new method is preferred.

Question 4

When a company changes from an accelerated method to the straight-line method of depreciation, what type of change does this represent?

Answer 4

change in accounting estimate

Question 5

Which type of accounting change should always be accounted for in current and future periods?

Answer 5

Change in accounting estimate

Question 6

What type of change occurs when presenting consolidated financial statements this year when statements of individual companies were presented last year?

Answer 6

An accounting change that should be reported by restating the financial statements of all prior periods presented.