Accounting Changes Flashcards

2
Q

How are changes in accounting principle applied?

A
Retrospective Application:
-Prior Periods adjusted
-Retained Earnings adjusted
-Completed Contract to % Completion
Ex: LIFO to FIFO
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3
Q

Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?

How would it be applied?

A

A change of principle.

Applied retrospectively.

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4
Q

Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?

How would this change be applied?

A

A change in accounting principle.

Applied retrospectively.

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5
Q

How is a change in accounting estimate applied?

A

A change in accounting estimate is applied prospectively (going forward) as a component of income from cont ops

No backwards adjustment is made.

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6
Q

Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?

How would this change be applied?

A

Change in depreciation method would be a change in accounting estimate.

It is applied prospectively.

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7
Q

How is a correction of an accounting error made?

A

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.

The correction of the error must be included in the footnotes.

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8
Q

What are the requirements for a prior period adjustment?

A

Effect is Material

Is identifiable in Prior Period

Couldn’t be estimated in Prior Periods

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9
Q

How is a change from a non-GAAP accounting method to a GAAP method recorded?

A

It is treated as a correction of an accounting error.

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements

Correction of the error must be included in the footnotes

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10
Q

How does an inventory error effect the financial statements?

A

Effect on Ending Inventory = Effect on Net Income

If one is overstated- both overstated. If one is understated- both understated.

Misstating inventory corrects itself after TWO periods.

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11
Q

How is a change in entity recorded?

A

Applied retrospectively.

All prior periods presented for comparative purposes must reflect the change

Footnote disclosures must be made

Changing to Consolidated Statements

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12
Q

How is a change in principle that is inseparable from change in estimate treated?

A

As a change in estimate

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13
Q

How is error correction treated?

A

Change from unacceptable method to acceptable method (cash to accrual)

Restatement of CV of A, L, and beg RE for earliest pd presented

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