Asked by cristian sanchez on May 09, 2024
Verified
The Pecan Street Ice Cream Company discovers that depreciation expense was overstated last year.How should this discovery be reported in the current year?
A) as a reduction in the current year's depreciation expense
B) as an increase to the retained earnings beginning balance
C) as a miscellaneous item in the Other Revenue/Expense section of the income statement
D) as a footnote only to the current year's financial statements
Retained Earnings
Accumulated net income not distributed to shareholders as dividends but retained by the company for reinvestment in its operations or to pay debt.
- Determine and rectify the influence of changes in depreciation prognoses on accounting statements.
Verified Answer
TM
Tiffany McCoyMay 13, 2024
Final Answer :
B
Explanation :
When depreciation expense is overstated in a previous year, the correction is typically made by adjusting the beginning balance of retained earnings in the current year. This adjustment reflects the cumulative effect of the error on years prior to the current one.
Learning Objectives
- Determine and rectify the influence of changes in depreciation prognoses on accounting statements.