Bellingham Inc. discovered in early 2014 that it had overstated depreciation expense reported on its 2013 income statement. How would this correction of an error be handled?

Question

Quizplus · Accepted Answer

The correction of the error should be made by adjusting the beginning balance of retained earnings as of December 31, 2013. This will correctly reflect the impact of the error on prior periods and will ensure that the 2014 financial statements are accurate. Option A would address the error in 2014 only and not correct the prior period financial statements. Option B is incorrect because a correction is needed. Option C would not accurately reflect the impact of the error on prior periods.