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Accounting Changes

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This week's quiz brought to you by:
Professor Diane Roberts
University of San Francisco



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Chinese proverb:
"The gem cannot be polished without friction, nor man perfected without trials."



1 - Which of the following are types of accounting changes?
Changes in accounting estimate.
Changes in accounting principle.
Changes in accounting entity.
All of the above.

2 - The appropriate treatment for a change in accounting estimate is to:
recast prior year financial statements using the new estimate.
use the new estimate in the current year and the future.
disclose the cumulative effect on the Income Statement.
disclose the cumulative effect on the Statement of Retained Earnings.

3 - The appropriate treatment for a change in accounting principle is to use the new principle in the current year and the future. There should also be:
no additional disclosure except footnote disclosure.
disclosure of the cumulative effect on the Income Statement.
disclosure of the cumulative effect on the Statement of Retained Earnings.
either b and c depending upon on management’s judgment.

4 - A company used completed contract accounting in all prior years but used percentage of completion in the current year. Which type of accounting change is this?
Change in accounting estimate.
Change in accounting principle.
Correction of a prior year error.
A change that is not allowed under US GAAP.

5 - A company changes from NIFO (Next In, First Out) to weighted average to account for its inventory. This is an example of:
a change in accounting estimate.
a change in accounting principle.
a correction of a prior period error as NIFO is not a US GAAP inventory method.
an inseparable change in accounting estimate and principle.

6 - An example of a change in accounting estimate is:
change in the useful life for depreciable assets.
change from double declining balance to straight line depreciation.
change from FIFO to weighted average for inventory.
both a and b.

7 - An inseparable change in accounting estimate and principle occurs when the new principle requires estimates not needed under the old principle. Treatment for this situation is to:
treat as a change in accounting estimate.
separate the estimate change from the principle change and report each as a separate line item on the Income Statement.
combine the estimate and principle change and report as a change in accounting principle on the Income Statement
combine the estimate and principle change and report as a change in accounting principle on the Statement of Retained Earnings.

8 - An example of a change in accounting principle is:
change in the percentage of bad debts.
change from sum of the year’s digits to straight line depreciation.
change from FIFO to weighted average for inventory.
both b and c.

9 - Weighted average inventory was adopted for the first time in 2007 by one segment of the business. This change is reported as a cumulative effect of change in accounting principle if the company previously:
used a different inventory method in another segment of the business.
used no inventory method as it only provided services in prior years
used a different inventory method in this segment of the business.
ignored computation of cost of goods sold and decided to disclose this information starting in 2007.

10 - Warranty expense is revised from the 3% of sales used in prior years to 5% of sales in the current year. Which type of accounting change is this?
Change in accounting estimate.
Change in accounting principle.
Correction of a prior year error.
inseparable change in estimate and principle.

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