CHAPTER 22 ACCOUNTING CHANGES AND ERROR ANALYSIS

1. A change in accounting principle is a change that occurs as the result of new information or additional experience. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: ...

1. A change in accounting principle is a change that occurs as the result of new information or additional experience. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 2. Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 3. Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change. Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 4. Retrospective application refers to the application of a different accounting principle to recast previously issued financial statements—as if the new principle had always been used. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 5. When a company changes an accounting principle, it should report the change by reporting the cumulative effect of the change in the current year’s income statement. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None 6. One of the disclosure requirements for a change in accounting principle is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented. Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None 7. An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting principle that is applied retrospectively. Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 8. Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 9. Companies report changes in accounting estimates retrospectively. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None 10. 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. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 22 - 5 Test Bank for Intermediate Accounting, Sixteenth Edition 11. Companies account for a change in depreciation methods as a change in accounting principle. Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 12. When companies make changes that result in different reporting entities, the change is reported prospectively. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 13. Changing the cost or equity method of accounting for investments is an example of a change in reporting entity. Ans: T, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 14. Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communication, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 15. Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period. Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 16. If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered cle