2. How changes or corrections are recognized. For each of the following iterhs,i

Question

2. How changes or corrections are recognized. For each of the following iterhs,indicate the type of accounting change and how each is recognized in the accounting records in the current year. (a) Change from straight-line method of depreciation to sum-of-the-years-digits (b) Chang (c) Change from FIFO to LIFO method for inventory valuation purposes (retrospective application e from the cash basis to accrual basis of accounting impractical) (d) Change from presentation of statements of individual companies to presentation of consolidated statements (e) (t) (g) Change due to failure to record depreciation in a previous period Change in the realizability of certain receivables Change from LIFO to FIFO method for inventory valuation purposes

Explanation / Answer

Answer 2-a. Change in accounting estimate; currently and prospectively. Answer 2-b. Correction of an error; restatement of financial statements of all prior periods presented; adjustment of beginning retained earnings of the current period Answer 2-c. Change in accounting principle; no restatement; base inventory is the opening inventory of the period of change. Answer 2-d. Change in accounting entity; retrospective restatement of financial statements of all prior periods presented; adjustment of beginning retained earnings of the current period. Answer 2-e. Correction of an error; restatement of financial statements of the period affected; prior period adjustment; adjustment of beginning retained earnings of the first period after the error. Answer 2-f. Change in accounting estimate; currently and prospectively. Answer 2-g. Change in accounting principle; retrospective restatement of all affected prior financial statements; adjustment of beginning retained earnings of the current period.

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