The four types of accounting changes, including error correction, are: Code a. C

Question

The four types of accounting changes, including error correction, are:

                     Code

                       a. Change in accounting principle.

                       b. Change in accounting estimate.

                       c. Change in reporting entity.

                       d. Error correction.

Instructions

Following are a series of situations. You are to enter a code letter to the left to indicate the type of change.

____ 1.    Change from presenting nonconsolidated to consolidated financial statements.

____ 2.    Change due to charging a new asset directly to an expense account.

____ 3.    Change from expensing to capitalizing certain costs, due to a change in periods benefited.

____ 4.    Change from FIFO to LIFO inventory procedures.

____ 5.    Change due to failure to recognize an accrued (uncollected) revenue.

____ 6.    Change in amortization period for an intangible asset.

____ 7.    Changing the companies included in combined financial statements.

____ 8.    Change in the loss rate on warranty costs.

____ 9.    Change due to failure to recognize and accrue income.

____ 10.    Change in residual value of a depreciable plant asset.

____ 11.    Change from an unacceptable to an acceptable accounting principle.

____ 12.    Change in both estimate and acceptable accounting principles.

____ 13.    Change due to failure to recognize a prepaid asset.

____ 14.    Change from straight-line to sum-of-the-years'-digits method of depreciation.

____ 15.    Change in life of a depreciable plant asset.

____ 16.    Change from one acceptable principle to another acceptable principle.

____ 17.    Change due to understatement of inventory.

____ 18.    Change in expected recovery of an account receivable.

Explanation / Answer

Solution:

1. (c) Change in reporting entity

2. (a) Change in accounting principle

3. (a) Change in accounting principle

4. (a) Change in accounting principle.

5. (d) Error correction

6. (b) Change in accounting estimate

7. (c) Change in reporting entity

8. (b) Change in accounting estimate

9. (d) Error correction

10. (b) Change in accounting estitmate

11. (d) Error correction

12. (a) and (b)

13. (d) This is an error which needs to be corrected. Error correction

14. (a) Change in accounting principle

15. (b) Change in accounting estimate

16. (a) Change in accounting principle

17. (d) This is an error which needs to be corrected. Error Correction.

18. (b) Change in accounting estimate.

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