Test Prep FINANCIAL-ACCOUNTING-AND-REPORTING Exam Dumps

Correct Answer: A

Choice "a" is correct. When the effect of a change in accounting principle is inseparable from the effect of a change in accounting estimate, the reporting treatment for the overall effect is as a change in estimate. Thus, the effect is reported prospectively as a component of income from continuing operations. Under SFAS No. 154, this type of change is now called a change in accounting estimate affected by a change in accounting principle. Choice "b" is incorrect. Restatement of all prior periods is the retroactive accounting treatment that is applied to the correction of an error and the retrospective accounting treatment given to changes in accounting principle. However, a change in accounting principle that is inseparable from the effect of a change in accounting estimate is now treated as a change in accounting estimate. Choice "c" is incorrect. Correction of an error is given retroactive treatment as a prior period adjustment to retained earnings with restatement of prior periods. This is not the treatment appropriate for the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate. Choice "d" is incorrect. While footnote disclosure is always appropriate for an accounting change, such disclosure alone is never the appropriate accounting treatment.

Correct Answer: B

Choice "b" is correct. Prior period adjustments consist of: corrections of errors in the financial statements of

prior periods, retroactive restatements required by new GAAP pronouncements, and changes from a non-

GAAP method of accounting to a GAAP method of accounting (which are corrections of errors).

Choice "a" is incorrect. This change is a change in accounting estimate.

Choice "c" is incorrect. This change is a change for one GAAP method of depreciation to another GAAP

method of depreciation. Under SFAS No. 154, it is treated as a change in accounting estimate effected by

a change in accounting principle and is handled prospectively, and not as a prior-period adjustment.

Choice "d" is incorrect. This is a business activity ordinary in nature.

Correct Answer: A

Choice "a" is correct. Unaffiliated customers sales and intracompany sales must be disclosed separately.