How Should a Change from One Generally Accepted Accounting Principle

question 42

Multiple Choice

How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement?

• A) Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year.
• B) Postpone recording of the change to the annual income statement.
• C) Record the change in the third-quarter income statement, net of income taxes.
• D) Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods.
• E) These changes are prohibited by GAAP.

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Definitions:

Production Cost

The total expense incurred in manufacturing a product, including raw materials, labor, and overheads.

Postponement

A strategy in supply chain management that delays the final production or distribution of a product until customer orders are received to reduce inventory costs.

Higher

A term generally used to indicate a greater amount, level, or degree of something.

Associated Cost

Refers to the total expenses directly linked to a specific activity, product, or service.