Question 1

An understatement of ending inventory will result in a credit to Future Income Taxes.

Accepted Answer

An understatement of ending inventory will result in a decrease in taxable income, which will decrease the amount of future income taxes owed. This decrease in taxes will result in a credit to Future Income Taxes.

Question 2

Accounting errors require the restatement of previous years' financial statements.

Accepted Answer

Accounting errors can have a significant impact on the accuracy of financial statements. If an error is material, previous years' financial statements must be restated to reflect the correction. This is necessary to maintain the transparency and reliability of financial reporting.

Question 3

If it is impracticable to determine the cumulative effect at the beginning of the current period or,if it is allowed by the creation of a new accounting standard,an accounting change may be applied prospectively.

Accepted Answer

If it is not practicable to determine the cumulative effect of a change in accounting principle, an entity may apply the change prospectively. This is allowed under Generally Accepted Accounting Principles (GAAP).

Question 4

The fact that most accounting changes are not disclosed may lead to ethical concerns among stakeholders.

Accepted Answer

Most accounting changes are not disclosed, which can raise ethical concerns among stakeholders who may feel that they are being left in the dark or that the company is hiding something from them. Full disclosure of accounting changes is important for maintaining transparency and fostering trust between a company and its stakeholders.

Question 5

A misstatement of opening inventory is an example of a counterbalancing error.

Accepted Answer

A misstatement of opening inventory affects both the income statement and balance sheet, and therefore requires a counterbalancing adjustment to correct the error.

Question 6

Change in accounting estimate requires that a "catch-up adjustment" be recorded and reported in the year of the change.

Accepted Answer

The answer of Change in accounting estimate requires that a...

Question 7

If a $1,000 purchase on credit last year was not recorded until this year and these goods purchased were not included in any year's ending inventory,the purchase error is counterbalancing.

Accepted Answer

The purchase error is not counterbalancing because there is no matching increase in ending inventory for the goods purchased in the previous year, resulting in an understated cost of goods sold and overstated net income for the previous year and an overstatement of expenses and understatement of net income for the current year.

Question 8

Both IFRS and ASPE require note disclosures pertaining to accounting standards not yet in effect.

Accepted Answer

The answer of Both IFRS and ASPE require note disclosures...

Question 9

The correction of an accounting error affecting prior years' income is reported and recorded by using the retrospective approach.

Accepted Answer

The retrospective approach is used to correct accounting errors affecting prior years' financial statements. This approach adjusts the beginning balances of the affected periods to correctly reflect the true state of the company's financial position and results of operations. The correction is reported in the current year's financial statements as an adjustment to beginning retained earnings.

Question 10

If a change in an accounting estimate affects the current period and future periods,the retrospective reporting approach must be used.

Accepted Answer

Changes in accounting estimates are accounted for prospectively, affecting the current and future periods only, not retrospectively.

Question 11

Early adoption of involuntary changes in accounting policy is prohibited under IFRS.

Accepted Answer

Early adoption of involuntary changes in accounting policy is allowed under IFRS if it is required by a new standard or interpretation. However, early adoption of voluntary changes in accounting policy is prohibited.

Question 12

Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.

Accepted Answer

The answer of Changing from an insupportable (bad faith)estimate to...

Question 13

Changes in estimates and prospectively-applied accounting policy changes occur more often in practice than do retrospectively-applied accounting policy changes.

Accepted Answer

Changes in estimates and prospectively-applied accounting policy changes are more common than retrospectively-applied accounting policy changes in practice.

Question 14

A change in an accounting estimate should be reported on the financial statements on a retrospective basis.

Accepted Answer

A change in an accounting estimate is accounted for prospectively, affecting the period of change and future periods, not retrospectively.

Question 15

An overstatement of opening inventory will result in an understatement of Cost of Goods Sold and therefore an overstatement of the current period's earnings.

Accepted Answer

The answer of An overstatement of opening inventory will result...

Question 16

An overstatement of opening inventory will result in an understatement of operating cash flows in the current period.

Accepted Answer

An overstatement of opening inventory would not directly affect operating cash flows since inventory levels primarily impact the cost of goods sold and, consequently, the net income on the income statement, rather than directly affecting cash flows. Operating cash flows are more directly influenced by actual cash transactions.

Question 17

All changes in accounting estimates should be accounted for only in the period of the change; there is no effect on future periods.

Accepted Answer

Changes in accounting estimates not only affect the period of the change but also have an effect on future periods, as they often involve revisions of future benefits or obligations.

Question 18

A change in an estimate,which was not determined reasonable (i.e.,not in good faith)to a good faith estimate,is accounted for as an accounting error.

Accepted Answer

A change in an estimate that was not determined to be reasonable and was updated to a good faith estimate is considered an accounting error.

Question 19

With respect to the application of retrospective accounting changes,both IFRS and ASPE require that an opening balance sheet be provided for the start of the earliest period affected by the changes.

Accepted Answer

Under IFRS, retrospective application of accounting changes does require restating comparative information as if the new accounting policy had always been applied, which may involve presenting an opening statement of financial position at the earliest comparative period. However, Accounting Standards for Private Enterprises (ASPE) in Canada allows for certain exemptions where an opening balance sheet may not be required for retrospective application, depending on the nature of the change.

Question 20

A change in accounting principle occurs when a company adopts a principle different from an inappropriate procedure that was used previously.

Accepted Answer

A change in accounting principle occurs when a company adopts a new accounting principle that is preferable to the one previously used, not necessarily because the previous method was inappropriate.

Quiz 10: Depreciation, Amortization, and Impairment