Error Correction

Question 1

If ending inventory is understated

Answer 1

Cogs is over stated
Net income is understated

So If y1 is under stated then cogs is over stated and net income is understated. Then it flips for the next year

Question 2

Prior period adjustments

Answer 2

The effect adjustment is material to income from continuing operations

The adjustment can be identified in the prior period

The amount of the adjustment could not be estimated in the prior periods

Question 3

If depreciation is understated for he current year his incorrect for tax purposes then

Answer 3

Only depreciation expense and accumulated depreciation is affected.

Question 4

Prior period adjustments include

Answer 4

Incorrect application of accounting principles

Disclosure mistakes

Measurement mistakes

Question 5

Change in accounting principle

Answer 5

Should be a PPA (net of tax), by adjusting the beg balance of retained earnings.