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chpt 22
Accounting changes & Errors intermed II
| Question | Answer |
|---|---|
| Changes in estimates are handled currently and prospectively. | true |
| Which type of accounting change should always be accounted for in current and future periods? | change in accounting estimate |
| When a company changes from an accelerated method to the straight-line method of depreciation, this change should be handled as a | Change in accounting estimate |
| Whenever it is impossible to determine whether a change in principle or a change in estimate has occurred, the change should be considered a: | change in estimate |
| Which of the following statements related to changes in estimates is | 1. Financial statements of prior periods are not restated 2. Opening balances are not adjusted for the change 3. Changes are viewed as normal recurring corrections and adjustments |
| A change in depreciation method used is which type of accounting change? | Prospective effect type |
| Which of the following is a reason why companies prefer certain accounting methods? | bonus payments and other reasons |
| Which of the following is not a reason why companies prefer certain accounting methods? | asset structure |
| Errors that take longer than two years to correct themselves are | non counterbalancing errors |
| Recording a depreciable asset as an expense is an example of a non counterbalance error | true |
| Errors that are not offset in the next accounting period are non counterbalancing errors. | true |
| Which is not a counterbalancing error | failure to record depreciation which is a non counterbalancing error |
| Change in accounting estimate | a change that occurs as the result of new information or as additional experience is acquired |
| Change in accounting principle | a change from one generally accepted accounting principle to another generally accepted accounting principle |
| Change in reporting entity | a change from reporting as one type of entity to another type of entity |
| Counter balancing errors | Errors that will be offset or corrected over two periods |
| Current adjustments | The cumulative effect of the use of new method on the financial statements at the beginning of the period is computed and is reporte4d in current year's income statement as an irregular item |
| Errors in financial statements | Errors occur as a result of mathematical mistakes, mistakes in the application of accounting principles or oversight or misuse of facts that existed at the time financial statements were prepared |
| Non counterbalancing errors | Errors that are not offset in the next accounting period |
| Inventory errors are counterbalancing errors. | correct they will correct themselves in two years |
| Which of the following is not a reason why companies prefer certain accounting methods? | Asset structure |
| IFRS does not explicitly address the accounting and disclosure of indirect effects. | true |
| Both IFRS and GAAP require retrospective application of the direct effects of changes in accounting policies. | true |
| Under IRFS the impracticability exception applies both to changes in accounting principles and to the correction of errors. | true |
| Under GAAP this exception applies only to changes in accounting principle | true No exception under GAAP for correcting errors. |
| What are the 3 accounting changes | 1. Change in Accounting Estimate 2. Change in reporting entity. 3. Change in Accounting Principal |
| Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of | Consistency |
| In 2013, PWT Company failed to record depreciation expense on some of its assets. When the error is discovered in 2014, it will be accounted for: | recorded as a prior period adjustment |
| A switch from the cash basis to accrual basis is considered a correction of an error. | Correcct |
| If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle | the change is considered clearly acceptable. |
| Understating ending inventory will understate the current year’s net income. | true |
| Failure to record depreciation expense in a given year must be accounted for: | As a prior period adjustment |
| Errors in prior period statements are accounted for as adjustments to the beginning balance of retained earnings. | true |
| Pro-foma Statements | Supplementary statements that are shown on an "as if" basis |
| Two accounting aproaches | 1 Prospective Applications- Estimate changes 2. Retrospective application * Acct principle change & Correction of errors |
| Prospective adjustments | previously reported results remain; no change is made. Opening balances are not adjusted and no attempt is made to allocate changes or credits for prior events. |
| Retrospective Adjustments | The cumulative effect of the use of the new method on the financial statements at the beginning of the period is computed and the prior years financial statements are recast on a basis consistent with the newly adopted principle or error correction. |
Created by:
smcdo11