adjustment (retained earnings) Flashcards
Correction of prior year’s understated depreciation expense
Solution:
Dr. Retained Earnings
Cr. Accumulated Depreciation
Change in inventory valuation method from FIFO to LIFO
Solution:
No adjustment for using retained earnings
Change in inventory valuation method from LIFO to FIFO
Dr. Retained Earnings
Cr. Inventory
Adjustment for overstated revenue recognized in the previous year
Dr. Retained Earnings
Cr. Accounts Receivable
Correction of understated accrued expenses from the prior per
Dr. Retained Earnings
Cr. Accrued Expenses Payable
Retroactive adjustment for change in useful life estimate of fixed assets
Dr. Retained Earnings
Cr. Accumulated Depreciation
Prior period adjustment for unrecorded warranty liability
Solution:
Dr. Retained Earnings
Cr. Warranty Liability
Correction of overvalued ending inventory from the previous year
Dr. Retained Earnings
Cr. Inventory
Adjustment for understated bad debt expense in the prior year
Solution:
Dr. Retained Earnings
Cr. Allowance for Doubtful Accounts
Retroactive application of new accounting standard for lease recognition
Solution:
Dr. Right-of-Use Asset
Cr. Lease Liability
Dr. Retained Earnings (for cumulative effect adjustment)
Correction of error in capitalization of research and development costs
Solution:
Dr. Research and Development Expense
Cr. Retained Earnings
