Asked by Hannah Hanson on May 12, 2024
Verified
An item that would not be accounted for under current GAAP as a change in estimate would be
A) an increase in the expected life of a piece of manufacturing equipment
B) a decrease in the estimated residual value of a delivery van
C) a change from FIFO to LIFO for a small subsidiary
D) an increase in defective items for the best selling video game
Residual Value
The estimated salvage value an asset will have at the end of its useful life.
Manufacturing Equipment
Machinery and tools that are used in the process of producing goods in a manufacturing facility.
- Differentiate between modifications in accounting principles and estimates.
Verified Answer
AG
Aissa GutierrezMay 19, 2024
Final Answer :
C
Explanation :
A change from FIFO to LIFO for a small subsidiary is considered a change in accounting principle, not a change in estimate. Changes in estimates, such as adjustments to the useful life of equipment, residual values, or estimates of defective items, are accounted for prospectively. However, changes in accounting principles require retrospective application unless it is impractical to determine the cumulative effect of the change.
Learning Objectives
- Differentiate between modifications in accounting principles and estimates.
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