IA3 Unit 6

Where is the cumulative effect of a change in accounting principle reported?

On the retained earnings statement as an adjustment to the beginning balance of the earliest year presented

On December 31, 2020, Dodd Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement purposes. The change will result in an increase in the Inventory account at January 1, 2020. The amount of the change, net of tax is, $2,300,000 (all tax effects should be ignored).

What is the cumulative effect of this accounting change that should be reported by Dodd Inc, in 2020?

Retained earnings statement as a $2,300,000 addition to the beginning balance

Which disclosure is required for a change from sum-of-the-years-digits to straight-line depreciation method?

Recomputation of current and future years' depreciation.

Which disclosure is required for a change from LIFO to FIFO?

The cumulative effect on prior years (net of tax) in the current retained earnings statement; the justification for the change; and restated prior year income

If retrospective application of a change in accounting principle requires assumptions about management’s intent in a prior period, then which approach should be used to account for the change?

Prospective

Stone Company changed its method of pricing inventories from FIFO to LIFO. Stone judges it impracticable to retrospectively apply the new pricing method.

What type of accounting change does this represent?

A change in accounting principle inseparable from a change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.

What is accounted for as a change in accounting principle?

A change in inventory valuation from average-cost to LIFO

When a company changes from an accelerated method to the straight-line method of depreciation, what type of change does this represent?

change in accounting estimate

Which of the following describes a change in reporting entity?

A company changes the companies included in combined financial statements

What type of change occurs when presenting consolidated financial statements this year when statements of individual companies were presented last year?

An accounting change that should be reported by restating the financial statements of all prior periods presented.

Which type of accounting change should always be accounted for in current and future periods?

Change in accounting estimate