How Should a Change from One Generally Accepted Accounting Principle

question 42

Multiple Choice

How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement?

• A) Retrospectively restate the first-quarter income statement, net of income taxes, as though the change occurred at the beginning of the year.
• B) Postpone recording of the change to the annual income statement.
• C) Record the change in the third-quarter income statement, net of income taxes.
• D) Adjust financial statements for each prior period presented to reflect the effects of the new principle in those reported periods.
• E) These changes are prohibited by GAAP.

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Definitions:

Dormant Commerce Clause

A restriction on states’ authority that is implied in the commerce clause of the U.S. Constitution: The power given to Congress to enact legislation that affects interstate commerce in effect prohibits a state from passing legislation that improperly burdens interstate commerce.

Interstate Commerce

Interstate Commerce refers to the buying, selling, or moving of goods, services, or money across state borders, regulated by the federal government.

Gun-Free School Zone Act

Federal legislation in the United States that prohibits the unauthorized possession of firearms in designated school zones.

Commerce Clause

A provision in the United States Constitution that grants Congress the power to regulate trade between states, with foreign nations, and among Indian tribes.