During 2017, a $50,000 loss on the sale of machinery was incorrectly recorded as a factory equipment repair. The error was not discovered until the books were closed and the financial statements were issued for 2018. What adjustment is necessary?
A) No adjustment is necessary to books or financial statements.
B) Record a correction to the books for 2017 and 2018 and recall prior financial statements.
C) Since only income statement accounts are affected, make no entry to the books but recall the 2017 income statement.
D) Make no entry, but if $50,000 is a material amount, retrospectively adjust the 2017 comparative income statement.

Question

Quizplus · Accepted Answer

The error affects prior period financial statements, so if the amount is material, a retrospective adjustment to the 2017 comparative income statement is necessary to correct the error.

During 2017, a $50,000 Loss on the Sale of Machinery