True or FalsePrior years' financial statements are not restated when the prospective approach is used.A change to the FIFO method of valuing inventory requires use of the retrospective method.Error corrections require restatement of all the affected prior year financial statements reported incomparative financial statements.No changes in accounting principle are reported using the retrospective approach.All changes in estimate are accounted for retrospectively.

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True or False Prior years' financial statements are not restated when the prospective approach is used.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter10: Inventory

Section: Chapter Questions

Problem 12MC: Which of the following financial statements would be impacted by a current-year ending inventory...

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Which of the following should not be reported retroactively? Use of an unacceptable accounting principle, then changing to an acceptable accounting principle. Correction of an overstatement of ending inventory made two years ago. Use of an unrealistic accounting estimate, then changing to a realistic estimate. Change from a good faith but erroncous estimate to a new estimate.
Which of the following is not a characteristic of non-counterbalancing error? a. If not detected, this is not automatically corrected in the next accounting period. b. The income statement of the period in which the non-counterbalancing error is committed is misstated. c. The statement of financial position of the year of non-counterbalancing error and succeeding statement of financial position are incorrect until the error is corrected. d. If the net income of one year is understated due to non-counterbalancing error, the net income of subsequent year is also affected.
2. Gabriela Company’s auditor discovered that the company inadvertently overstated ending Inventory for the prior year. If the error is not corrected, what effect will the error have on the following financial statement items for both the prior year and the current year? Indicate in each box a “+" (plus) if the item is overstated, a “-“ (minus) if the item is understated, and a “N/A" if there is no effect on the item. Prior Year Current Year Effect on Income Statement Goods Available for Sale Cost of Goods Sold Gross Profit Net Income Effect on Balance Sheet Inventory on 12/31 Retained Earnings
Which of the following statements on inventory valuation errors is false? a. Over a two-year period, misstatements of ending inventory will balance themselves out. b. An overstatement of ending inventory overstates net income. c. An understatement in net income is the result of an overstatement in cost of goods sold. d. An overstatement of cost of goods sold overstates ending inventory.
Do you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors as said to correct themselves. Market usually means replacement cost of inventory when applied in the LMC. Cost of goods available for sale equals the inventory plus cost of sales.
Do you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors are said to correct themselves. Market usually means replacement cost of inventory when applied in the LCM. Cost of goods available for sale equals ending inventory plus cost of sales.
A purchase on credit is recorded twice and not corrected during the year-end physical inventory. Which of the following statements correctly describes the impact of this error? The succeeding year income on the income statement is incorrect because beginning inventory is understated. The succeeding year purchases are understated when the prior year purchases are corrected. The current year income on the income statement is correct because purchases are overstated and ending inventory is overstated. The current year balance sheet ending inventory and accounts payable are understated.
which of the following is not true regarding standards for interim reporting? a. declines in inventory value should be deferred to future interim periods b. use of the gross margin method for computing cost of goods sold must be disclosed c. costs and expenses not directly associated with interim revenue must be allocated to interim period on a reasonable basis d. gains and losses that arise in an interim period should be recognized in the interim period in which they arise if they would not normally be deferred at year end
An understatement of ending inventory in the year 20-1 will cause net income to be overstated in the year 20-2, assuming no other errors.
Which of the following financial statements would be impacted by a current-year ending inventory error, when using a periodic inventory updating system? A. balance sheet B. income statement C. neither statement D. both statements
Explain why errors in the valuation of inventory at the endof the year are sometimes called “counterbalancing” or“self-correcting.”
Inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and stockholders' equity? a.net income is understated, assets are understated, and stockholders' equity is overstated b.net income is understated, assets are understated, and stockholders' equity is understated c.net income is overstated, assets are overstated, and stockholders' equity is overstated d.net income is overstated, assets are overstated, and stockholders' equity is understated