A company changed its method of inventory pricing from last-in, first-out to first-in, first-out during the current year. Generally accepting accounting principles require that this change in accounting method be reported by:
A) Accounting for the effects of the change in the current and future periods.
B) Showing the cumulative effect of the change in the current year's financial statements and pro forma effects on prior year's financial statements in an appropriate footnote
C) Disclosing the reason for the change in the "significant accounting policies" footnote for the current year but not restating prior year financial statements
D) Applying retroactively the new method in restatements of prior years and appropriate footnote disclosures

Question

Quizplus · Accepted Answer

When a company changes its inventory pricing method, generally accepted accounting principles (GAAP) require that the change be applied retroactively. This means that the company must restate prior years' financial statements as if the new method had been in use all along, in addition to providing appropriate footnote disclosures to explain the change and its effects.

A Company Changed Its Method of Inventory Pricing from Last-In