An Item That Should Be Reported as a Prior Period

question 27

Multiple Choice

An item that should be reported as a prior period adjustment is the:

• A) Correction of an error in depreciation from last year.
• B) Payment of taxes due to a tax audit of last year's tax return.
• C) Payment of a previously recorded warranty expense.
• D) Receipt of the proceeds of a note receivable that was due last year.

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Definitions:

Goodwill Impairment

Goodwill impairment occurs when the market value of a company's goodwill asset falls below its book value, indicating that the asset is overvalued on the balance sheet.

Long-Term Liabilities

Financial obligations of a company that are due after a year or more.

Net Income

Net income is the total earnings of a company after subtracting all expenses, taxes, and losses.

Operating Profit Test

A financial metric used to assess a company's profitability from its core operations, excluding effects of financing and taxes.