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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Generally, how should a change in accounting estimate that is affected by a change in accounting principle be reported?

Chapter 22, Problem 6MC, Generally, how should a change in accounting estimate that is affected by a change in accounting

To determine

Find the correct option, the option that indicates the reporting method of change in accounting estimate effected by a change in accounting principle.

Explanation

Accounting changes: When a company requires to sacrifice the consistent accounting methods and procedures, to enhance the usefulness and relevance of the accounting information, those changes are referred to as accounting changes. Such inevitable accounting changes decrease the comparability and consistency of accounting information. The reasons for accounting changes could be new methods introduced by FASB (Financial Accounting Standards Board), changes in accounting principles, and changes in accounting estimates. The following are the three types of accounting changes:

  • Change in an accounting principle
  • Change in an accounting estimate
  • Change in a reporting entity

Methods of reporting accounting changes:

  • Retrospective adjustment method: This method requires that the previously reported financial statements should be revised to reflect the current accounting change. The change in a reporting entity and change in accounting principle are accounted for retrospectively.
  • Prospective method: This method requires that the current financial statements should be accounted for the changes, and the previously reported financial statements need not be revised...

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