A Cumulative Effect of a Change in an Accounting Principle

question 66

Multiple Choice

A cumulative effect of a change in an accounting principle is measured as

• A)the difference between prior periods' net income under the old method and what would have been reported if the new method had been used in the prior years.
• B)the after-tax difference between prior periods' net income under the old method and what would have been reported if the new method had been used in the prior years.
• C)the difference between prior periods' net income and current net income under the old method and what would have been reported if the new method had been used in the prior years and the current year.
• D)the after-tax difference between prior periods' net income and current net income under the old method and what would have been reported if the new method had been used in the prior years and the current year.

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production process, including utilities, maintenance, and factory supplies, that cannot be directly traced back to a product.

Raw Materials

Unprocessed or minimally processed materials that are used as inputs in manufacturing and production processes.

Inventories

Stocks of goods and materials that a business holds for the purpose of resale or incorporation into their product.

Job-Order Costing

A cost accounting system that assigns manufacturing costs to an individual product or batch of products, making the cost tracking process more manageable.