Treatment of accounting errors, changes in accounting principles, and changes in accounting estimates. A firm computes net income for Year 12 of $1,500 and for Year 13 of

$1,800. its first two years of operations. Before issuing its financial statements for Year 13. the firm discovers that an item requires an income-reducing adjustment of $400 after taxes. Indicate the amount of net income for Year 1 2 and Year 1 3 assuming ( 1 ) the item is an error in the computation of depreciation expense for Year 12 (Year 13 depreciation expense is correct as computed). (2) the item is the change in net income for Year 1 2 as a result of adopting a new method of accounting for stock options in Year 13 (Year 13 stock option expense reflects the new accounting principle), and (3) the item is the change in estimated uncollectible accounts for Year 1 2 as a result of worsened credit losses experienced in Year 1 3: the firm included the adjustment amount in bad debt expense for Year 13.

EXERCISES