Analyzing the effect of prior-period adjustments Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $70,000 for utility expense. The correct amount of the utility expense was $35,000. Requirements Determine the effect of the error on the accounting equation in 2018. How should this error be reported in the 2019 financial statements?

Question

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $70,000 for utility expense. The correct amount of the utility expense was $35,000.

Requirements

  1. Determine the effect of the error on the accounting equation in 2018.
  2. How should this error be reported in the 2019 financial statements?

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