The Cumulative Effect on Prior Years' Earnings of a Change

question 30

Multiple Choice

The cumulative effect on prior years' earnings of a change in accounting principle should be reported separately as an adjustment to retained earnings for the earliest period presented for all of the following changes except

• A) completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method.
• B) percentage-of-completion method of accounting for long-term construction-type contracts to the completed-contract method.
• C) FIFO method of inventory pricing to LIFO method.
• D) LIFO method of inventory pricing to the weighted-average method.

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Definitions:

Earnings Per Share

A measure of a company's profitability that divides its net earnings available to common shareholders by the outstanding shares.

Quick Ratio

A measure of a company's ability to meet its short-term obligations using its most liquid assets, calculated as (cash + marketable securities + accounts receivable) / current liabilities.

Current Ratio

This ratio assesses a firm's capacity to cover its obligations due in the next year by comparing its current assets to its current liabilities.

Interval Measure

A financial metric used to determine how long a company can operate with its available amount of current assets, calculated usually in months.