20A1 - Intermediate Accounting - Acc. for Changes and Errors

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:

• materiality.

• consistency.

• conservatism.

• objectivity.

Which of the following is accounted for as a change in accounting principle?

• A change in the estimated useful life of plant assets.

• A change from the cash basis of accounting to the accrual basis of accounting.

• A change from expensing immaterial expenditures to deferring and amortizing them as they become material.

• A change in inventory valuation from average cost to FIFO.

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a:

• change in accounting principle.

• change in accounting estimate.

• prior period adjustment.

• correction of an error.

An example of a correction of an error in previously issued financial statements is a change:

• from the FIFO method of inventory valuation to the LIFO method.

• in the service life of plant assets, based on changes in the economic environment.

• from the cash basis of accounting to the accrual basis of accounting.

• in the tax assessment related to a prior period.

Which type of accounting change should always be accounted for in current and future periods?

• Change in accounting principle

• Change in reporting entity

• Change in accounting estimate

• Correction of an error