An Example of an Item That Should Be Reported as a Prior

question 11

Multiple Choice

An example of an item that should be reported as a prior period adjustment is the

• A) collection of previously written off accounts receivable.
• B) payment of taxes resulting from examination of prior years' income tax returns.
• C) correction of an error in financial statements of a prior year.
• D) receipt of insurance proceeds for damage to a building sustained in a prior year.

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Definitions:

Direct Materials

The raw materials that can be directly attributed to the production of a product.

Manufacturing Overhead

All production costs other than direct materials and direct labor, including expenses such as maintenance, utilities, and depreciation on manufacturing facilities.

Capital Expenditure Budget

A budget for planning and controlling spending on long-term assets, including buildings, equipment, and technology, intended for future operations.

Long-Term Assets

Assets that are expected to provide economic benefits over a period longer than one year, such as buildings and equipment.