Chap020 (accounting) 57 - A In 2011 income from continuing...

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45. Retrospective restatement usually is appropriate for a change in: A. Option a B. Option b C. Option c D. Option d Most changes in accounting principle are accounted for retrospectively. That is, financial statements of prior periods are restated to report the financial information for the new reporting entity in all periods. Changes in estimate are accounted for prospectively. AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 20-02 Describe how changes in accounting principle typically are reported. Learning Objective: 20-04 Explain how and why changes in estimates are reported prospectively. Level of Learning: Medium 46. For 2010, P Co. estimated its two-year equipment warranty costs based on $23 per unit sold in 2010. Experience during 2011 indicated that the estimate should have been based on $25 per unit. The effect of this $2 difference from the estimate is reported
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Unformatted text preview: A. In 2011 income from continuing operations. B. As an accounting change, net of tax, below 2011 income from continuing operations. C. As an accounting change requiring 2010 financial statements to be restated. D. As a correction of an error requiring 2010 financial statements to be restated. The change in the estimate for warranty costs is based on new information obtained from experience and qualifies as a change in accounting estimate. A change in accounting estimate affects current and future periods and is not accounted for by restating prior periods. The accounting change is a part of continuing operations but is not reported net of taxes. AACSB: Reflective thinking Bloom's: Synthesis Learning Objective: 20-04 Explain how and why changes in estimates are reported prospectively. Level of Learning: Medium...
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