Question

Downtown Stores Inc. intends to change from operating leases to capitalized leases to comply with changes in accounting standards. This would be considered a change in?

1) lease estimate
2) accounting standard
3) accounting principle
4) accounting estimate

Answer 1

The transition by Downtown Stores Inc. from operating leases to capitalized leases to align with accounting standards changes is a change in accounting principle. It reflects the adoption of new GAAP directives under updated standards like ASC 842 or IFRS 16.

Step-by-step explanation:

When Downtown Stores Inc. intends to change from operating leases to capitalized leases to comply with changes in accounting standards, this would be considered a change in accounting principle. The shift from treating leases as operating to capitalizing them is a substantial change in how a company accounts for its leases on the balance sheet. It represents a transition from one generally accepted accounting principle (GAAP) to another, reflecting a more accurate representation of a company's financial position and commitments due to the adoption of new standards such as ASC 842 or IFRS 16 by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) respectively.