In the Current Year, Jacksonville Company Has Discovered a Material

question 45

Multiple Choice

In the current year, Jacksonville Company has discovered a material prior-period error in its calculation of income. The company had incorrectly debited an asset costing $120,000 to an expense account. The related income tax expense was $42,000. This error should be reported on the current year Statement of Retained Earnings as a(n) :

• A)Increase in Retained Earnings of $162,000.
• B)Increase in Retained Earnings of $120,000.
• C)Decrease in Retained Earnings of $120,000.
• D)Increase in Retained Earnings of $78,000.
• E)Decrease in Retained Earnings of $78,000.

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Definitions:

Accounts Receivable

The money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Permanent Account

An account in the general ledger that carries its ending balance over to the next accounting period, such as assets, liabilities, and equity accounts.

Balance Sheet Accounts

Accounts that appear on the balance sheet, representing the company's assets, liabilities, and shareholders' equity at a specific point in time.

Mortgage Payable

A liability account that records the amount owed on a long-term property loan.