When There Has Been a Change in Accounting Principle

question 55

Multiple Choice

When there has been a change in accounting principle,

• A)the old principle should be used in reporting the results of operations for the current year.
• B)the cumulative effect of the change should be reported in the current year's retained earnings statement.
• C)the change should be reported retroactively.
• D)the new principle should be used in reporting the results of operations of the current year, but there is no change to prior years.

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Definitions:

Equilibrium Output

The level of output where the quantity of goods produced equals the quantity of goods consumed, resulting in market equilibrium.

Potential Output

The maximum amount of goods and services an economy can produce when it is most efficiently utilizing all its resources.

Actual Output

The real quantity of goods and services produced by an economy or firm at a given period, regardless of capacity.

Nominal GDP

The overall economic output of a country, consisting of all final goods and services produced in a defined period, assessed at prevailing market prices without correction for inflation.