SESSION 3 Review

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period.

• TRUE

• FALSE

Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information.

• TRUE

• FALSE

Companies account for a change in depreciation methods as a change in accounting principle.

• TRUE

• FALSE

When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.

• TRUE

• FALSE

Companies report changes in accounting estimates retrospectively.

• TRUE

• FALSE

Which of the following is not treated as a change in accounting principle?

•       A change from LIFO to FIFO for inventory valuation

• A change to a different method of depreciation for plant assets

• A change from full-cost to successful efforts in the extractive industry

• A change from completed-contract to percentage-of-completion

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.

A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a

• credit to Accumulated Depreciation.

• debit to Retained Earnings in the amount of the difference on prior years.

• debit to Deferred Tax Asset.

• credit to Deferred Tax Liability.

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

Which of the cash flow activities does depreciation expense falls?

• operating activity

• investing activity

• financing activity