Bakersfield College ACG 2021 True/False Questions 1)Most, but not all, changes in accounting principle are reported using the retrospective approach

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Bakersfield College

ACG 2021

True/False Questions

1)Most, but not all, changes in accounting principle are reported using the retrospective approach.

Prior years' financial statements are restated when the prospective approach is used.

A change in accounting estimate and a change in reporting entity are types of changes in accounting principle.

Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements that the change is made.

All changes reported using the retrospective approach require prior period adjustments.

All changes in estimate are accounted for retrospectively.

A change to the LIFO method of valuing inventory usually requires use of the retrospective method.

A change in reporting entity and a material error correction are both reported prospectively.

A change in reporting entity requires note disclosure in all subsequent financial statements prepared for the new entity.

Error corrections require restatement of all the affected prior year financial statements reported in comparative financial statements.

Multiple Choice Questions

How many acceptable approaches are there for changes in accounting principles?
1. One.
2. Two.
3. Three.
4. Four.

Which of the following is not one of the approaches for reporting accounting changes?
1. The change approach.
2. The retrospective approach.
3. The prospective approach.
4. All of these answer choices are approaches for reporting accounting changes.

Retrospective restatement usually is not used for a:

1. Change in accounting estimate.
2. Change in accounting principle.
3. Change in entity.
4. Correction of error.

An accounting change that is reported by the prospective approach is reflected in the financial statements of:
1. Prior years only.
2. Prior years plus the current year.
3. The current year only.
4. Current and future years.

When a change in accounting principle is reported, what is sometimes sacrificed?
1. Relevance.
2. Consistency.
3. Conservatism.
4. Representational faithfulness.

When an accounting change is reported under the retrospective approach, prior years' financial statements are:
1. Revised to reflect the use of the new principle.
2. Reported as previously prepared.
3. Left unchanged.

1. Adjusted using prior period adjustment procedures.

Regardless of the type of accounting change that occurs, the most important responsibility is:
1. To properly determine the tax effect.
2. To communicate that a change has occurred.
3. To compute the correct amount of the change.
4. None of these answer choices is correct.

Which of the following changes would not be accounted for using the prospective approach?
1. A change to LIFO from average costing for inventories.
2. A change from the individual application of the LCM rule to aggregate approach.
3. A change from straight-line to double-declining balance depreciation.
4. A change from double-declining balance to straight-line depreciation.

Accounting changes occur for which of the following reasons?
1. Management is being fair and consistent in financial reporting.
2. Management compensation is affected.
3. Debt agreements are impacted.
4. All of these answer choices are correct.

Which of the following changes is not usually accounted for retrospectively?
1. Change from expensing extraordinary repairs to capitalizing the expenditures.
2. Change from FIFO to LIFO.
3. Change in the composition of firms reporting on a consolidated basis.
4. Change from LIFO to FIFO.

Which of the accounting changes listed below is more associated with financial state- ments prepared in accordance with U.S. GAAP than with International Financial Report- ing Standards (IFRS)?
1. Change in reporting entity.
2. Change to the LIFO method from the FIFO method.
3. Change in accounting estimate.
4. Change in depreciation methods.

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Stan- dards (IFRS)?
1. Change in estimated useful life of depreciable assets.
2. Change from the FIFO method of costing inventories to the LIFO method.
3. Change in depreciation method.

1. Change in reporting entity.

Which of the following changes should be accounted for using the retrospective approach?
1. A change in the estimated life of a depreciable asset.
2. A change from straight-line to declining balance depreciation.
3. A change to the LIFO method of costing inventories.
4. A change from the completed-contract method of accounting for long-term construction contracts.

Companies should report the cumulative effect of an accounting change in the income statement:
1. In the quarter in which the change is made.
2. In the annual financial statements only.
3. In the first quarter of the fiscal year in which the change is made.
4. Never.

Disclosure notes related to a change in accounting principle under the retrospective approach should include:
1. The effect of the change on executive compensation.
2. The auditor's approval of the change.

1. The SEC's permission to change.
2. Justification for the change.

Which of the following is an example of a change in accounting principle?
1. A change in inventory costing methods.
2. A change in the estimated useful life of a depreciable asset.
3. A change in the actuarial life expectancies of employees under a pension plan.
4. Consolidating a new subsidiary.

Which of the following is not an example of a change in accounting principle?
1. A change in the useful life of a depreciable asset.
2. A change from LIFO to FIFO for inventory costing.
3. A change to the full costing method in the extractive industries.
4. A change from the cost method to the equity method of accounting for investments.

When the retrospective approach is used for a change to the FIFO method, which of the following accounts is usually not adjusted?
1. Deferred Income Taxes.
2. Inventory.
3. Retained Earnings.
4. All of these answer choices are usually are adjusted.

JFS Co. changed from straight-line to double-declining-balance depreciation. The journal entry to record the change includes:
1. A credit to accumulated depreciation.
2. A debit to accumulated depreciation.
3. A debit to a depreciable asset.
4. The change does not require a journal entry.

National Hoopla Company switches from sum-of-the-years' digits depreciation to straight-line depreciation. As a result:
1. Current income tax payable increases.
2. The cumulative effect decreases current period earnings.
3. Prior periods’ financial statements are restated.
4. None of these answer choices is correct.

If a change is made from straight-line to SYD depreciation, one should record the effects by a journal entry including:
1. A credit to deferred tax liability.
2. A credit to accumulated depreciation.
3. A debit to depreciation expense.
4. No journal entry is required.

On January 2, 2016, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2016, the amount of the change in accumulated depreciation is $40,000. The appropriate tax rate is 40%. The separately reported change in 2016 earnings is:
1. An increase of $40,000.
2. A decrease of $40,000.
3. An increase of $24,000.
4. None of these answer choices is correct.