Question 1

A company accounts for a change in reporting entity as a prospective adjustment so that all the financial statements are presented for the same entity.

Accepted Answer

A change in reporting entity is accounted for by retrospectively adjusting all prior-period financial statements to include the financial information for the new reporting entity as if it had been included from the beginning.

Question 2

Errors affecting only the balance sheet are corrected with a journal entry and do not require a restatement of financial statements.

Accepted Answer

False

Question 3

A retrospective adjustment requires a change in the
A) prior period financial statements to look like the current period financial statements
B) current period income to reflect the cumulative effect of new method
C) prior period financial statements to reflect how they would have been presented had the new method been used in prior periods
D) current period accounts in the financial statements to what they would have been had the previous method been used in the current period

Accepted Answer

Retrospective adjustment involves updating prior period financial statements to reflect how they would have been presented if the new method had been used in prior periods. This is done to ensure consistency in financial reporting and comparability of financial statements over different periods. Choices A, B, and D do not accurately describe the purpose of a retrospective adjustment.

Question 4

A change in a reporting entity is accounted for by a prospective adjustment so that all the future financial statements are presented consistently.

Accepted Answer

A change in a reporting entity is accounted for by a retrospective adjustment, not prospective, to ensure that all financial statements are presented consistently as if the new reporting entity had always existed.

Question 5

Which statement concerning accounting for accounting changes and errors is false?
A) An error is accounted for retrospectively.
B) A change in accounting principle is accounted for prospectively.
C) A change in accounting principle may be accounted for retrospectively.
D) A change in accounting estimate is accounted for prospectively.

Accepted Answer

A change in accounting principle is generally accounted for retrospectively, not prospectively. This means that, when a company changes its accounting principle, it must apply the new principle to all periods presented in the financial statements as if that principle had always been used.

Question 6

A change in accounting entity is limited to presenting consolidated or combined financial statements in place of individual statements or a change in the subsidiaries that make up a group of companies in which one would report either as consolidated financial statements or changing the mix of companies included in the financial statements.

Accepted Answer

A change in accounting entity can only involve the presentation of consolidated or combined financial statements, or a change in the composition of a group of companies included in the financial statements. It cannot involve any other changes to the accounting entity.

Question 7

The FASB requires the use of the retrospective adjustment method because it provides financial statement users with more useful information when accounting for a change in accounting principles.

Accepted Answer

The FASB requires the use of the retrospective adjustment method because it allows financial statement users to compare the current period's financial statements with prior periods as if the new accounting principle had always been used, providing more useful information.

Question 8

Change in an accounting principle is accounted for
A) prospectively
B) by a prior period adjustment
C) by a retrospective application of a new accounting principle
D) by constructive application of a new accounting principle

Accepted Answer

When there is a change in an accounting principle, it is accounted for by a retrospective application of a new accounting principle. This means that the change is applied retrospectively to all prior periods presented in the financial statements. This ensures that the financial statements are comparable and consistent over time. Choosing A or B would not provide for full retrospective application of the new accounting principle, and constructive application (D) is not a recognized accounting concept.

Question 9

Which of the following accounting changes is always accounted for prospectively?
A) change in accounting estimate
B) change in reporting entity
C) change in accounting principle
D) correction of an error

Accepted Answer

A change in accounting estimate is always accounted for prospectively, meaning it is applied to future periods and does not affect prior periods.

Question 10

Which of the following statements does not properly state a basic principle for reporting an accounting change?
A) retrospectively apply a change in accounting principle
B) prospectively account for a change in accounting estimate
C) retrospectively adjust for a change in reporting entity
D) retrospectively apply a change in accounting estimate

Accepted Answer

Changes in accounting estimates are accounted for prospectively, not retrospectively. Changes in accounting principles and changes in reporting entity are the ones that are generally applied retrospectively.

Question 11

An advantage of retrospective adjustment method is that it achieves comparability and consistency between accounting periods.

Accepted Answer

Retrospective adjustment method updates prior period financial statements to reflect current accounting standards or errors. This ensures that financial statements are comparable and consistent between accounting periods.

Question 12

Generally accepted methods of accounting for a change in accounting principle include
A) restating prior years' financial statements presented for comparative purposes
B) including the cumulative effect of the change in net income
C) prospective changes
D) making a prior period adjustment

Accepted Answer

The answer of Generally accepted methods of accounting for a...

Question 13

A change in accounting estimate does not result in a retrospective adjustment to previously issued financial statements.

Accepted Answer

A change in accounting estimate is applied prospectively, meaning it affects future financial statements, but not past ones. Retroactive adjustments are only made for errors or prior period adjustments.

Question 14

Sometimes a change in estimate and a change in accounting principle are undistinguishable therefore a company should account for the change as a change in accounting principle.

Accepted Answer

A change in estimate is accounted for prospectively, affecting only the period of change and future periods, while a change in accounting principle generally requires retrospective application to all prior periods presented, unless it is impracticable to do so. These are distinct accounting treatments.

Question 15

Prospective adjustments are expected to
A) impact financial statements of only previous years
B) impact financial statements of previous years and current years as if the accounting principle had always been used
C) produce no impact on the financial statements of previous years
D) impact the financial statements of the current year only

Accepted Answer

The answer of Prospective adjustments are expected to
A) impact financial...

Question 16

A counterbalancing error will automatically correct itself in the next accounting period even if it is never discovered.

Accepted Answer

The answer of A counterbalancing error will automatically correct itself...

Question 17

A change in accounting principle because an Accounting Standard Update has been issued and the former principle is no longer generally accepted is treated under the prospective method.

Accepted Answer

When a change in accounting principle is due to an Accounting Standard Update and the former principle is no longer generally accepted, it is typically applied retrospectively to all prior periods presented in the financial statements, unless the transition guidance specifies a different method.

Question 18

Retrospective adjustments are expected to
A) impact financial statements of only previous years
B) impact financial statements of previous years and current years as if the accounting principle had always been used
C) produce no impact on the financial statements of previous years
D) produce no impact on the financial statements of the current year

Accepted Answer

Retrospective adjustments are adjustments made to financial statements of previous years to correct an error or to apply a new accounting principle. These adjustments are expected to impact financial statements of previous years as well as the current year as if the accounting principle had always been used. This means that the financial statements of previous years will need to be restated to reflect the correction or change in accounting principle.

Question 19

The accounting changes identified by current GAAP include all of the following except
A) correction of an error
B) change in accounting principle
C) change in accounting estimate
D) change in reporting entity

Accepted Answer

Correction of an error is not considered an accounting change under current GAAP; instead, it is treated as a prior period adjustment. Changes in accounting principles, estimates, and reporting entities are recognized as accounting changes.

Question 20

A change in accounting principle from one that is not generally accepted to one that is generally accepted should be treated as
A) an error and corrected by prior period adjustment
B) a change in accounting principle and the cumulative effect included in net income
C) a change in accounting principle and prior period financial statements are restated
D) a change in accounting principle and adjustments made prospectively

Accepted Answer

The answer of A change in accounting principle from one...

Quiz 22: Accounting for Changes and Errors

A company accounts for a change in reporting entity as a prospective adjustment so that all the financial statements are presented for the same entity.

Errors affecting only the balance sheet are corrected with a journal entry and do not require a restatement of financial statements.

A retrospective adjustment requires a change in the

A change in a reporting entity is accounted for by a prospective adjustment so that all the future financial statements are presented consistently.

Which statement concerning accounting for accounting changes and errors is false?

The FASB requires the use of the retrospective adjustment method because it provides financial statement users with more useful information when accounting for a change in accounting principles.

Change in an accounting principle is accounted for

Which of the following accounting changes is always accounted for prospectively?

Which of the following statements does not properly state a basic principle for reporting an accounting change?

An advantage of retrospective adjustment method is that it achieves comparability and consistency between accounting periods.

Generally accepted methods of accounting for a change in accounting principle include

A change in accounting estimate does not result in a retrospective adjustment to previously issued financial statements.

Sometimes a change in estimate and a change in accounting principle are undistinguishable therefore a company should account for the change as a change in accounting principle.

Prospective adjustments are expected to

A counterbalancing error will automatically correct itself in the next accounting period even if it is never discovered.

A change in accounting principle because an Accounting Standard Update has been issued and the former principle is no longer generally accepted is treated under the prospective method.

Retrospective adjustments are expected to

The accounting changes identified by current GAAP include all of the following except

A change in accounting principle from one that is not generally accepted to one that is generally accepted should be treated as