It is year end and for each of the following separate issues, state the type of change, change in accounting principle, change in accounting estimate, or an error, how it would be accounting for, retroactively or prospectively, and how would it appear on year end financials. Please answer each separately without quoting or paraphrasing from the book and without journal entries!

1. You have been using cash accounting for the last 4 years and the new accountant has determined that you need to change to accrual accounting this year.

2. You estimated two years ago that it would cost you $300,000 for a contingent liability based on a lawsuit. This year it was settled for $350,000.

3. Your accountant has decided to change from LIFO to FIFO for inventory costing at the beginning of the current year. You have been using LIFO for the last 3 years.

4. The accountant decided that equipment purchased Jan 1st of last year, for 120,000 with a 4-year life should change from the double declining balance method to the straight-line depreciation method.

Answer rating: 100% (QA)

Answer 1 Change in accounting principle this would be accounted for prospectively beginning at the start of the current year This would not appear on ... View the full answer