Choice "c" is correct. $730,000 gain reported as a separate component of income before extraordinary
items.

Choice "b" is correct. Revenues and gains are realized when assets are exchanged for cash or claims to
cash. SFAC 5 para. 83.
Choice "a" is incorrect. Assigning depreciation in a production department is an example of allocating
overhead. There is no realization associated with the assignment.
Choice "c" is incorrect. The realization concept is integral to accounting for revenues and expenses and is
not connected to collection of receivables.
Choice "d" is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an
example of matching. There is no realization associated with this assignment.

Choice "d" is correct. Income tax-basis financial statements recognize events when taxable income or
deductible expenses are recognized on the entity's tax return. Non-taxable income and non-deductible
expenses are shown on the financial statement and included in the determination of income (and become
M-1 adjustments to arrive at taxable income). Please Note: This question appeared in the releases for
1 999 in FARE; however, it may also apply to OCBOA financial statements discussed in the Auditing
textbook. The question did not apply well to any FARE CSO line item, so we included it here so that you
could read the Explanation: and learn from it.

Choice "a" is correct. A change in the valuation technique used to measure fair value is a change in
accounting estimate. Choice "b" is incorrect. Per SFAS No. 157, a change in valuation technique is a
change in accounting estimate, not a change in accounting principal. Choice "c" is incorrect. Although a
change from the cost approach to the market approach is a change in valuation technique, a change in
valuation technique is not defined as a type of accounting change, but instead falls into the category of
changes in accounting estimate. Choice "d" is incorrect. Both the market approach and the cost approach
are acceptable methods of measuring fair value per SFAS No. 157; therefore, switching between these
methods is not the correction of an error. Additionally, an error correction is not a type of accounting
change.

Choice "b" is correct. Yes - Yes.
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for both
"interim" and "year-end" financial reporting.