If a Company Makes a Prior Period Adjustment, Which of the Following

question 11

Multiple Choice

If a company makes a prior period adjustment, which of the following describes how it must be reported?

• A)The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are not changed.
• B)The adjustment is recorded in retained earnings, and previous years' financial statements presented for comparative purposes are adjusted.
• C)The adjustment is reported in the current period's income statement as a separate item.
• D)The adjustment is recorded as a deferred asset or deferred liability and amortized using the straight-line method.

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Definitions:

Auditing Services

Professional services that examine and verify the accuracy of financial records and statements of a company.

Investing Activities

Financial transactions related to the acquisition or disposal of long-term assets and other investments not included in cash equivalents.

Cost Control

The practice of managing and reducing business expenses to increase profits without compromising product or service quality.

Gross Profit

The financial gain obtained after subtracting the cost of goods sold from the revenue generated from sales.