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Unformatted text preview: Chapter 20 Chapter Accounting Changes True/False Questions 1. Most, but not all, changes in accounting principle are reported using the retrospective approach. Answer: True Learning Objective: 1 Level of Learning: 1 2. All changes in estimate are accounted for retrospectively. Answer: False Learning Objective: 3 Level of Learning: 1 3. Both changes in reporting entities and material error corrections are reported prospectively. Answer: False Learning Objective: 5 Level of Learning: 1 4. Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements after the change is made. Answer: True Learning Objective: 2 Level of Learning: 1 5. Error corrections require restatement of all the affected prior year financial statements reported in comparative financial statements. Answer: True Learning Objective: 6 Level of Learning: 1 6. A change to the LIFO method of valuing inventory requires use of the retrospective method . Answer: False Learning Objective: 3 Level of Learning: 2 7. Prior years' financial statements are restated when the prospective approach is used. Answer: False Learning Objective: 1 Level of Learning: 1 8. The after-tax cumulative effect on income is no longer required for changes in accounting principles. Answer: True Learning Objective: 1 Level of Learning: 2 9. All changes reported using the retrospective approach require prior period adjustments. Answer: False Learning Objective: 2 Level of Learning: 2 10. A change in reporting entity requires footnote disclosure in all subsequent financial statements prepared for the new entity. Answer: False Learning Objective: 5 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 79 Chapter 20 Accounting Changes Matching Pair Questions Use the following to answer questions 11-20: 11-20. Indicate the nature of each of the situations described below using the following three-letter code. CODE DESCRIPTION CPR: Change in principle reported retrospectively CPP: Change in principle reported prospectively CES: Change in estimate CRE: Change in reporting entity PPA: Prior period adjustment required 11. ____ Technological advance that renders worthless a patent with an unamortized cost of $45,000. 12. ____ Change from LIFO inventory costing to average inventory costing. 13. ____ Including in the consolidated financial statements a subsidiary acquired several years earlier that was appropriately not included in previous years. 14. ____ Change from FIFO inventory method to LIFO. 15. ____ Pension plan assets for a defined benefit pension plan achieving a rate of return in excess of the amount anticipated. 16. ____ Change from the direct write-off method to the allowance method for recording bad debt expense. (Assume bad debts are material in this case and have always been material.) 17. ____ Change from declining balance depreciation to straight-line....
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This note was uploaded on 11/08/2009 for the course ACCOUNTING Acct 384 taught by Professor Bethkane during the Fall '09 term at Columbia College.
- Fall '09