AICPA CPA-Financial Exam Dumps

Choice 'B' is correct. A change in accounting principle should be shown in the retained earnings statement of the earliest year presented as an adjustment of the beginning balance. All prior year financial statements are recast.

Choice 'd' is correct. A change in the method of depreciation is now considered to be both a change in method and a change in estimate. These changes should be accounted for as changes in estimate and handled prospectively. The new depreciation method should be used as of the beginning of the year of change and should start with the current book value of the underlying asset. No retroactive or retrospective calculations should be made, and no adjustment should be made to retained earnings.

And, certainly, the cumulative effect should not be reflected on the income statement any more.

Choices 'a', 'b', and 'c' are incorrect, per the above Explanation: .

Choice 'c' is correct. A change in accounting principle that is inseparable from a change in accounting estimate should now be reported as a change in estimate and thus as a component of income from continuing operations, in the period of change and future periods if the change affects both.

Distinguishing between a change in accounting principle and a change in accounting estimate is sometimes difficult. For example, a company may change from deferring and amortizing a cost to recording it as an expense when incurred because future benefits of the cost have become doubtful. The new accounting method is adopted, therefore, in partial or complete recognition of the change in estimated future benefits. The effect of the change in principle is inseparable from the effect of the change in estimate. Changes of this type are often related to the continuing process of obtaining additional information and revising estimates and are therefore considered as changes in estimates.

Choice 'a' is incorrect. Restating the financial statements of all prior periods would be done in the case of prior period adjustments (corrections of errors), changes in accounting principle (retrospective application), and changes in accounting entity (retrospective application).

Choice 'b' is incorrect. Correction of an error would be treated as a prior period adjustment.

Choice 'd' is incorrect. Separate disclosure after income from continuing operations would be done in the case of extraordinary items or discontinued operations. However, this disclosure would not be made 'in the period of change and future periods if the change affects both' but only in the period of the extraordinary item or discontinued operation.

Choice 'b' is correct. Yes - Yes.

Both the 'extraordinary items' and 'income before extraordinary items' should be shown with an earnings per share number on the income statement.

Choice 'b' is correct. Revenues and gains are realized when assets are exchanged for cash or claims to cash. SFAC 5 para. 83.

Choice 'a' is incorrect. Assigning depreciation in a production department is an example of allocating overhead. There is no realization associated with the assignment.

Choice 'c' is incorrect. The realization concept is integral to accounting for revenues and expenses and is not connected to collection of receivables.

Choice 'd' is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an example of matching. There is no realization associated with this assignment.