In Situations Where the Change in Accounting Principle Has Both

question 74

Multiple Choice

In situations where the change in accounting principle has both direct and indirect effects on prior years' income, GAAP states that a company recognize

• A) only the direct effect retrospectively.
• B) the direct effect and discuss the indirect effect in the notes to the financial statements.
• C) only the indirect effect.
• D) the direct effect prospectively.

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Definitions:

Contribution Margin

The amount of revenue remaining after subtracting the variable costs associated with producing goods, contributing to covering fixed costs and profit.

Service Firms

Companies that primarily provide intangible products or services to customers, such as consultancy, education, financial services, and healthcare.

Inventory

The total amount of goods and materials held by a company intended for sale or used in production.

Service Firms

Businesses that provide intangible products or services to consumers as opposed to tangible goods.