M2- Accounting Changes and Errors

Question 1

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 1

As a component of income from continuing operations (OVERALL CHANGE IN ESTIMATE= prospectively)

Question 2

Per U.S. GAAP, how should accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity?

Answer 2

The FS of ALL prior periods presented should be restated

Question 3

Corp A changed from the cash basis of accounting to the accrual basis of accounting during the current year. The cumulative effect of this change should be reported in Lore’s current year financial statements as a:

Answer 3

Prior period adjustment resulting from the correction of an error (THINK error correction = PPA) (non-GAAP to GAAP)

Question 4

What are the exceptions to changes in accounting principles?

Answer 4

1. Change in inventory method TO LIFO
2. Change in METHOD OF DEPRECIATION

Question 5

How should you adjust for an error that occurred in a prior year that isn’t presented?

Answer 5

Adjust beg RE of the earliest year presented

Question 6

Accumulated depreciation expenses are booked at …

Answer 6

Gross level (prior to tax impact)

Question 7

What does a credit purchase in yr 1 not being recorded correctly result in end of year 1 FS?

Answer 7

Increase to AP

Question 8

Error Correction…think

Answer 8

Prior Period Adjustment (PPA)

Question 9

Change in Accounting Estimate is accounted for…

Answer 9

Prospectively

Question 10

Change in Accounting Principle is accounting for…

Answer 10

Retrospectively