(L.O. 7) A correction of an error in prior periods’ income will be reported:

Approach and Explanation: Write down what you know about the accounting for a correction of an error in computing income in a prior period. Then answer “yes” or “no” to each question posed at the top of the appropriate column. Find the combination that matches yours. A correction of an error is a prior period adjustment; it is reported net of tax as an adjustment to the beginning retained earnings balance on the statement of retained earnings in the period the error is corrected. (Solution = d.)

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In the income Net of statement tax a. Yes Yes b. No No C. Yes No d. No Yes