1a company corrected its errors in reporting revenue. identify the appropriate t

Question

1a company corrected its errors in reporting revenue. identify the appropriate treatment for this situation

A. Prospective treatment                      C. Retrospective treatment

B. Discontinued operations                   D. Extraordinary item

2.a company made changes in estimated lives of equipment- estimated life revised downward. identify the appropriate treatment for this situation.

A. Prospective treatment                      C. Retrospective treatment

B. Discontinued operations                   D. Extraordinary item

Explanation / Answer

1. Company corrected it's errors in reporting revenue appropriate treatment for this situation is retrospective treatment because to correct the error financial statements have to be restated it's means previously issued financial statements are to be revised and shown along with current year statements. So it's option C retrospective treatment.

2. Change in estimated lives of equipment- estimated life revised downward appropriate treatment for this situation is prospective treatment as it reflects the change only in current and future periods not in past so answer is A prospective treatment as it doesn't require it's financial statements to be restated.

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