Discuss whether Colston Company correctly reported the following items in the financial statements:
a. In a recent year, the company discovered a clerical error in the prior year's accounting records. As a result, the reported net income for the previous year was overstated by $45,000. The company corrected this error by restating the prior-year financial statements.
b. In a recent year, the company voluntarily changed its method of accounting for long term construction contracts from the percentage of completion method to the completed contract method. Both methods are acceptable under generally acceptable accounting principles. The cumulative effect of this change was reported as a separate component of income in the current period income statement.