Question

Choose the correct answer

1) When a change in accounting principle is reported, what is likely sacrificed?

A.Relevance.

B.Consistency.

C.Conservatism.

D.Representational faithfulness.

2)Which of the following changes should be accounted for using the retrospective approach?

A. A change in the estimated life of a depreciable asset.

B. A change from straight-line to declining balance depreciation.

C. A change in policy increasing product warranty period from 1 year to 2 years for new products.

D. A change from the completed-contract method of accounting for long-term construction contracts.

3)If a change is made from straight-line to double declining balance depreciation, one should record the

effects by a journal entry including:

A. A credit to deferred tax liability and debit to retained earnings.

B. A credit to accumulated depreciation and debit to retained earnings.

C. A debit to deferred tax assets and credit to retained earnings.

D. No journal entry is required at time of change.

4)Which of the following should be disclosed in a Summary of Significant Accounting Policies (select all that

apply)?

A. Long term lease commitments

B. Details of notes payable contracts.

C. Cumulative effect of a change in accounting principle

D. Depreciation method followed

E. Revenue recognition policy

F. Policy on classification of cash equivalents

Answer 1

Choose the correct answer
1) When a change in accounting principle is reported, what is likely sacrificed?
A.Relevance.
B.Consistency.	Correct	Consistency facilitates comparisons between information about the same enterprise at two different points in time
C.Conservatism.
D.Representational faithfulness.
2)Which of the following changes should be accounted for using the retrospective approach?
A. A change in the estimated life of a depreciable asset.
B. A change from straight-line to declining balance depreciation.
C. A change in policy increasing product warranty period from 1 year to 2 years for new products.
D. A change from the completed-contract method of accounting for long-term construction contracts.	Correct	When an accounting change is reported under the retrospective approach, prior years' financial statements are revised to reflect the use of the new principle
3)If a change is made from straight-line to double declining balance depreciation, one should record the
effects by a journal entry including:
A. A credit to deferred tax liability and debit to retained earnings.
B. A credit to accumulated depreciation and debit to retained earnings.	Correct	These changes are charged to retained earnings with comparative adjustment and restatement of opening balances
C. A debit to deferred tax assets and credit to retained earnings.
D. No journal entry is required at time of change.
4)Which of the following should be disclosed in a Summary of Significant Accounting Policies (select all that
apply)?		The policy summary can include policies from a broad range of operational and financial areas like  cash, receivables, intangible assets, asset impairment, inventory valuation, types of liabilities, revenue recognition, and capitalized costs.
A. Long term lease commitments
B. Details of notes payable contracts.
C. Cumulative effect of a change in accounting principle	Correct
D. Depreciation method followed	Correct
E. Revenue recognition policy	Correct
F. Policy on classification of cash equivalents	Correct