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Question 4: On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working
closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several
errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial
statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these
transactions as: a change in accounting principle, a change in accounting estimate, a correction of an
error in previously presented financial statements, or neither an accounting change nor an
accounting error.
Item to Be Answered
Quo manufactures heavy equipment to customer specifications on a contract basis. On the basis that
it is
preferable, accounting for these long-term contracts was switched from the completed-contract
method to
the percentage-of-completion method.
List A (Select one)
A. Change in accounting principal.
B. Change in accounting estimate.
C. Correction of an error in previously presented financial statements.
D. Neither an accounting change nor an accounting error.
Correct Answer: A
Explanation:
Choice "a" is correct. Switching from the completed-contract method of accounting to the
percentage-of
completion method is a "change in accounting principle."
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