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.

Question

Quizplus · Accepted Answer

The error correction involves reversing the incorrect expense and recognizing the asset, which increases retained earnings by the net effect after tax: $120,000 - $42,000 = $78,000.

In the Current Year, Jacksonville Company Has Discovered a Material