Accountants very often are required to make estimates, and very often those estimates prove incorrect. In what period(s) is the effect of a change in an accounting estimate reported?
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Accountants very often are required to make estimates, and very often those estimates prove incorrect. In what period(s) is the effect of a change in an accounting estimate reported?
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- Define a change in estimate and provide an example. When is a change in accounting principle responsible for a change in accounting estimate?When it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, the change is treated as: a. Change in accounting estimate with appropriate disclosure b. Change in accounting policy c. Correction of error d. Change in accounting estimate with no appropriate disclosureWhich statement is incorrect concerning accounting estimate a.As a result of uncertainties inherent in business activities, many items in financial statements cannot be measured withprecision but can only be estimated. b.By its very nature, the revision of an estimate relates to a prior period and is a correction of an error. c.The use of reasonable estimate is an essential part of the preparation of financial statements and does not determinetheir reliability. d.An estimate may need revision if changes occur in the circumstances on which the estimate was based or as result ofnew information or more experience.
- What is the difference between reporting accounting changes, changes in estimates, and error corrections. Provide an example of each and discuss the effect on the financial statements.The change in accounting estimate should be treated currently and prospectively. True or falseWhen it is difficult to distinguish a change in accounting policy from achange in an accounting estimate, the change is treated as A. Change in accounting estimate with appropriate disclosureB. Change in accounting policyC. Correction of an errorD. Initial adoption of an accounting policy
- Which of the following is not a characteristic of non-counterbalancing error? a. If not detected, this is not automatically corrected in the next accounting period. b. The income statement of the period in which the non-counterbalancing error is committed is misstated. c. The statement of financial position of the year of non-counterbalancing error and succeeding statement of financial position are incorrect until the error is corrected. d. If the net income of one year is understated due to non-counterbalancing error, the net income of subsequent year is also affected.Which statement concerning accounting for accounting changes and errors is not true? a. An error is accounted for retroactively b. A change in accounting principle is accounted for prospectively c. A change in accounting principle may be accounted for retroactively d. A change in accounting estimate is accounted for prospectivelyWhich of the following is not a characteristic of non-counterbalancing error? Group of answer choices a.If the net income of one year is understated due to non-counterbalancing error, the net income of subsequent year is also affected. b.The statement of financial position of the year of non-counterbalancing error and succeeding statement of financial position are incorrect until the error is corrected. c.If not detected, this is not automatically corrected in the next accounting period. d.The income statement of the period in which the non-counterbalancing error is committed is misstated.
- Discuss how a change in accounting policy is handled when it is impracticable to determine previous amounts.Which of the following statements regarding accounting change is correct? a. Change in depreciation method is accounted for as a change in accounting policy. b. Change in accounting estimate is accounted for in current and future periods. c. The categories of accounting changes are change in accounting estimate and correction of prior period error. d. A switch from the direct write-off method to the allowance method of accounting for bad debts is an example of change in accounting policy.What are interim reports? Why is a complete set of financial statements often not provided with interim data? What are the accounting problems related to the presentation of interim data?