301586 Flashcards
Conn Co. reported a retained earnings balance of $400,000 at December 31 of the previous year. In August of the current year, Conn determined that insurance premiums of $60,000 for the 3-year period beginning January 1 of the previous year had been paid and fully expensed in that year. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its current-year statement of retained earnings?
$420,000
$428,000
$440,000
$442,000
$428,000
Conn should report $428,000:
Beginning retained earnings as originally reported $400,000
Over expense of $40,000 – Tax of 30% ($12,000) 28,000
Corrected beginning retained earnings $428,000
Correction of Error
Correction of error is a change in an amount reported in previously issued financial statements that was in error due to unintentional mathematical mistakes, mistakes in application of a principle, or oversight or misuse of facts. It is also a change from an accounting principle that is not GAAP to one that is GAAP. It is distinguished from change in accounting estimate.
Correction of error is given retroactive treatment.
FASB ASC 250-10-45-23
Prior-Period Adjustment
A prior-period adjustment is an adjustment made directly to the retained earnings account to correct errors made in prior accounting periods.
Restatement
Restatement is the process of revising previously issued financial statements to reflect the correction of an error in those financial statements.
FASB ASC Glossary
2313.01
A correction of an error in prior years’ financial statements is reported in the year of correction by restating all prior years affected by the error. The cumulative effect of the error on periods prior to those presented must be reflected in the carrying amounts of the assets and liabilities as of the beginning of the earliest year presented in the current period’s financial report. In addition, the offsetting amount of this cumulative effect must be reported as an adjustment to the opening balance of retained earnings of the earliest year presented in the current period’s financial report.
FASB ASC 250-10-45-22 to 45-24
