Part I Choose the correct statement(s) regarding changes in accounting estimates

Question

Part I

Choose the correct statement(s) regarding changes in accounting estimates:

Changes in accounting estimates generally result from the availability of new information.

Disclosure of current period effects is generally required for changes in estimate.

A change in accounting principle that is inseparable from a change in estimate is accounted for prospectively, but with footnote disclosure of retrospective effects.

Multiple Choice

A. II and III only.

B. I only.

C. III only.

D. I and II only.

Part II

During 2018, Creek Co. determined that an insurance premium paid and entirely expensed in 2017 was for the period January 1, 2017 through January 1, 2019. How should Creek classify and treat the above transaction on its financial statements?

Multiple Choice

A. Creek Co. should classify the transaction as a correction of an accounting error and restate its financial statements retroactively.

B. Creek Co. should classify the transaction as a change in accounting principle and restate its financial statements retroactively.

C. Creek Co. should classify the transaction as a correction of an accounting error and make no retroactive adjustments.

D. Creek Co. should classify the transactions as a change in accounting principle and make no retroactive adjustments.

Part III

The correction of a mathematical error in the calculation of prior years’ depreciation should be:

Multiple Choice

A. Recorded as a prior-period adjustment.

B. Corrected with an adjustment to the current period’s depreciation expense.

C. Recorded as a change in accounting estimate.

D. Recorded as a change in accounting principle.

Explanation / Answer

Part 1 - Answer is A

Part 2-Creek company should have recorded the insurance premium for the period ending 2017 as insurance expense while the insurance premium for the period 2018 through 2019 as prepaid insurance .Insurance expense should be debited to income statement of 2017 while prepaid insurance should be debited with an equal amount of cash credited.prepaid insurance would be shown as current asset in the balance sheet.so only part A is correct.

Part 3 answer is A.

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