1) Knowledge Check 01
1) Companies are allowed to depart from the requirement that a change in accounting principle be reported retrospectively when: (Select all that apply.)
Check All That Apply
a) disclosure is made of the impact of the choice not to apply the change to the amounts reported in the financial statements.
b) it is impracticable to determine some period-specific effects.
c) it is impracticable to determine the cumulative effect of prior years.
d) the prospective approach is mandated by authoritative accounting literature
2) Knowledge Check 01
Which of the following statements about changes in accounting estimates are correct? (Select all that apply.)
Check All That Apply
a) A revision of an original estimate made in bad faith should be accounted for as a correction of an error.
b) Changes in accounting estimates are accounted for prospectively.
c) Changes in accounting estimates are accounted for retrospectively.
d) When a company revises a previous estimate, prior financial statements are revised.
e ) When a company revises a previous estimate, prior financial statements are not revised.
3 ) Knowledge Check 01
At the end of Year 1, Schule Company incorrectly recorded notes payable as accounts payable. The error was discovered during Year 3. The company’s Year 3 annual report includes comparative financial statements covering Years 2 and 3. The company should: (Select all that apply.)
Check All That Apply
a) Record a journal entry to correct the notes payable and accounts payable balances.
b) Retrospectively restate the Year 2 balance sheet to reflect the correction.
c) Report the correction as a prior period adjustment to the beginning balance of retained earnings reported for Year 2.
d) Include the nature of the error in a disclosure note.

Companies are allowed to depart from the requirement that a change in accounting principle be reported retrospectively when it is impracticable to determine some period-specific effects.

Companies are allowed to depart from the requirement that a change in accounting principle be reported retrospectively when it is impracticable to determine some period-specific effects and when it is impracticable to determine the cumulative effect of prior years.

A revision of an original estimate made in bad faith should be accounted for as a correction of an error.
Changes in accounting estimates are accounted for retrospectively.
When a company revises a previous estimate, prior financial statements are revised.

These statements are correct.

At the end of year one a notes payable was recorded as accounts payable, the error was discovered in year 3, this included comparative financial statements, the company should record a journal entry to correct the notes payable and accounts payable balances, then retrospectively restate year 2 balance sheet to correct the reflection and then include the nature of the error in a disclosure note.

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