accounting changes questions and answers

accounting changes questions and answers - Question:...

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Question: TREPC-0001 The 2007 financial statements of Bice Company reported net income for the year ended December 31, 2007, of $2,000,000. On July 1, 2008, subsequent to the issuance of the 2007 financial statements, Bice changed from an accounting principle that is not generally accepted to one that is generally accepted. If the generally accepted accounting principle had been used in 2007, net income for the year ended December 31, 2007, would have been decreased $1,000,000. On August 1, 2008, Bice discovered a mathematical error relating to its 2007 financial statements. If this error had been discovered in 2007, net income for the year ended December 31, 2007, would have been increased $500,000. What amount, if any, should be included in net income for the year ended December 31, 2008, because of the items noted above? Answers A : $0. B : $ 500,000 decrease. C : $ 500,000 increase. D : $1,000,000 decrease. Answer Explanations A. Answer A is correct. The change from an unacceptable accounting principle to an acceptable accounting principle is considered a correction of an error per SFAS 154. Thus both of these items are corrections of errors and as such are reported as prior period adjustments. Prior period adjustments are reported in the retained earnings statement and not in the income statement (SFAS 16). Thus 2008 earnings are not affected by the aforementioned items. B. Answer B is incorrect. Refer to the correct answer explanation. C. Answer C is incorrect. Refer to the correct answer explanation. D. Answer D is incorrect. Refer to the correct answer explanation. Question: TREPC-0002 A company changes from an accounting principle that is not generally accepted to one that is generally accepted. The effect of the change should be reported, net of applicable income taxes, in the current Answers
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A : Income statement after income from continuing operations and before extraordinary items. B : Income statement after extraordinary items. C : Retained earnings statement as an adjustment of the opening balance. D : Retained earnings statement after net income but before dividends. Answer Explanations A. Answer A is incorrect. Refer to the correct answer explanation. B. Answer B is incorrect. Refer to the correct answer explanation. C. Answer C is correct. SFAS 154 states that a change from an accounting principle that is not generally accepted to one that is generally accepted should be treated in the same manner as a correction of an error. A correction of an error should be reported as a prior period adjustment (SFAS 154). This means that the cumulative effect at the beginning of the period of change is entered directly as an adjustment to the opening balance of retained earnings (SFAS 16). When comparative statements are presented, prior years' statements are retroactively restated (APB 9). Therefore, answer C is correct and answer D is incorrect. Answers A and B are incorrect because no special presentation is needed in the current period's income statement for the correction of an
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This note was uploaded on 12/08/2009 for the course FAR 5745 taught by Professor Philoreily during the Spring '09 term at Nova Southeastern University.

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accounting changes questions and answers - Question:...

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