To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at www.fasb.org. Click on “Pronouncements & EITF Abstracts.” In this chapter, we discussed estimations of both bad debt expense and warranty expense. For this case, we will use Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections.” Open FASB Statement No. 154.
1. Read the paragraph in the summary titled “Reasons for Issuing this Statement.” What is cited as the primary reason behind the issuance of this accounting standard?
2. Read paragraph 19. If a firm, in the normal course of business, revises its estimate of bad debt expense from one year to the next, should the firm provide pro forma information so that users will be able to tell what bad debt expense would have been if prior estimates had been used?
3. Read paragraph 22. What is the one instance in which a change in the estimate of uncollectible accounts would be required to be disclosed?