Retrospective Application

Question 1

What is the amount recorded for the change in deferred taxes for a change in accounting principle?

Answer 1

The pretax cumulative effect multiplied by the tax rate

Question 2

What account records the effect of principle change on prior years?

Answer 2

Retained earnings

Question 3

What is the amount of the cumulative effect reported in the earliest reported year of the retained earnings statement?

Answer 3

The effect of the change on years before the earliest year reported

Question 4

What account is debited when an accounting principle change causes income in prior years to decrease?

Answer 4

Retained earnings (cumulative effect of change)

Question 5

What accounting change is often impracticable to compute a cumulative effect?

Answer 5

Change to Last In First Out (LIFO)

Question 6

What is the pretax amount of the cumulative effect of a change in inventory method?

Answer 6

The difference in inventory balance for the new and old methods, at the beginning of the year of change.

Question 7

When an accounting change happens and it is impracticable to determine period specific effects of the change, how is it treated?

Answer 7

Prospectively as of the earliest date possible

Question 8

What is a change in reporting entity?

Answer 8

1. ) Presenting consolidated or combined financials in place of individual financials
2. ) Changing the set of subsidiaries that make up a consolidated group
3. ) Changing the entities included in combined financials
4. ) Change from cost or FV method for accounting to the equity

Question 9

What accounting treatment does a change in reporting entity use?

Answer 9

Retrospective

Question 10

What disclosures are required for retrospective application?

Answer 10

1. ) Nature of the change and reason for it

2. ) Effect of the change on income from continuing operations, net income, OCI and related per share amounts.