During 2017, a $50,000 Loss on the Sale of Machinery

question 48

Multiple Choice

During 2017, a $50,000 loss on the sale of machinery was incorrectly recorded as a factory equipment repair. The error was not discovered until the books were closed and the financial statements were issued for 2018. What adjustment is necessary?

• A) No adjustment is necessary to books or financial statements.
• B) Record a correction to the books for 2017 and 2018 and recall prior financial statements.
• C) Since only income statement accounts are affected, make no entry to the books but recall the 2017 income statement.
• D) Make no entry, but if $50,000 is a material amount, retrospectively adjust the 2017 comparative income statement.

---

Definitions:

Average Tax Rate

The ratio of total taxes paid to total income, indicating the share of income that goes to taxes.

After-Tax Distribution

The amount of money shareholders receive from a corporation's earnings after all applicable taxes have been deducted.

Before-Tax Distribution

Refers to the allocation of income among individuals or entities before accounting for taxes.

Personal Income Tax

a tax levied on individuals or households based on their total annual income, with the tax rate typically increasing as income increases.