Under New Accounting Standards Passed in 2006 Firms Must Report

question 52

Multiple Choice

Under new accounting standards passed in 2006 firms must report changes in accounting principle in the current and prior years as if the new accounting principle had been applied all along.The rationale for this change was:

• A) using the same accounting principle in current and prior periods enhances the information content of reported earnings in forecasting future earnings.
• B) conservatism.
• C) comparability.
• D) materiality.

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Definitions:

Goodwill

The intangible asset that arises when a company acquires another business for more than the fair value of its net assets.

Impairment

The permanent reduction in the value of a company's asset, typically when the asset's market value drops below its recorded book value.

Dividends

Earnings distributed by a company to its shareholders, usually in the form of cash or additional shares.

Consolidated Retained Earnings

The total accumulated profits of a parent company and its subsidiaries after dividends are paid, as shown in consolidated financial statements.