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Question 1: How should the effect of a change in accounting estimate be accounted for?
A. By restating amounts reported in financial statements of prior periods.
B. By reporting pro forma amounts for prior periods.
C. As a prior period adjustment to beginning retained earnings.
D. In the period of change and future periods if the change affects both.
Correct Answer: D
Explanation:
Choice "d" is correct, a "change in accounting estimate" affects only the current and subsequent
(future)
periods, if the change affects both. It does not affect "prior periods," nor "retained earnings." Choice
"a" is
incorrect. Restating prior years' financial statements is required when comparative financial
statements
are shown for prior period adjustments of "corrections of errors," "changes in entities," and changes
in
accounting principle. Choices "b" and "c" are incorrect. A "change in accounting estimate" does not
affect
prior periods.
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