Test Bank-2020-Financial Accounting-Meaning.Nature & Role-Chapter 20- Accounting

. Most, but not all, changes in accounting principle are reported using the retrospective approach. True False 2. Prior years' financial statements are restated when the prospective approach is used. True False 3. The after-tax cumulative effect on income is no longer required for changes in accounting principles. True False 4. Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements after the change is made. True False 5. All changes reported using the retrospectiv12. Indicate the nature of each of the situations described below using the following three-letter code. 1. Change in estimate Change from FIFO inventory costing to LIFO inventory costing. 2. Prior period adjustment required Change from LIFO inventory costing to FIFO inventory costing. 3. Change in principle reported retrospectively Change in the composition of a group of firms reporting on a consolidated basis. 4. Change in principle reported prospectively Change to the installment method of accounting for receivables. 5. Change in estimate Change in actuarial assumptions for a defined benefit pension plan. 6. Change in principle reported retrospectively Change from sum-of-the-years' digits depreciation to straight-line. 7. Change in principle reported prospectively Change from expensing extraordinary repairs erroneously recorded as an expense to capitalizing the expenditures. 8. Change in reporting entity Change in the percentage used to determine bad debts. 9. Change in principle reported prospectively Change from prior reporting for postretirement benefits to that mandated by an Accounting Standards Update. 10. Change in estimate Change in the residual value of machinery.Prospective approach Required for all material accounting changes and error corrections. 2. Disclosure note The approach now used for changes in depreciation methods. 3. Error corrections Most are handled under the retrospective approach. 4. Changes in accounting principle Involves consolidated financial statements. 5. Changes in reporting entity Accounting changes always handled retrospectively. 20-5 14. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. 1. Changes in accounting estimates No longer used for changes in accounting principle. 2. Current period adjustment to income statement only Adjustment to retained earnings of earliest year reported. 3. Prior period adjustment No journal entry needed, but disclosure is required. 4. Prospective approach Handled prospectively. 5. Pro forma disclosure "As if" amounts for net income and EPS.