Watts Corporation Made a Very Large Arithmetical Error in the Preparation

question 75

Multiple Choice

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as

• A) an increase in depreciation expense for the year in which the error is discovered.
• B) a component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.
• C) an extraordinary item for the year in which the error was made.
• D) a prior period adjustment.

---

Definitions:

James-Lange Theory

A theory of emotion suggesting that emotions occur as a result of physiological reactions to events.

Cannon-Bard Theory

A theory of emotion that proposes emotions and bodily responses occur simultaneously, rather than one causing the other.

Attributions

Explanations or reasons given for why things happen, especially in terms of people's behaviors and outcomes.

Premises

Buildings and lands owned or occupied by a person or organization, often referring to a business location.