Ending Inventory for 2009 Is Overstated by $4,000 Due to a Faulty

question 61

Multiple Choice

Ending inventory for 2009 is overstated by $4,000 due to a faulty count and costing. The tax rate is 30%. Assume the same accounting methods for both financial reporting and taxes. The error is discovered late in 2011. The 2011 annual report shows the financial statements for 2009, 2010, 2011 on a comparative basis.
Which of the following is correct regarding the reporting of this error in the 2011 annual report?

• A) A journal entry is made to report the prior period adjustment, and the 2009 and 2010 statements are shown corrected.
• B) No journal entry is needed, and the 2009 and 2010 statements are shown as they were in the 2010 annual report.
• C) No journal entry is needed, and the 2009 and 2010 statements are shown corrected.
• D) A journal entry is made to report the prior period adjustment, and the 2009 and 2010 statements are shown as they were in the 2010 annual report.

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