Chapter 7
Corporations: The Financial Statements
356
AP-7B (
4
)
On January 31, 2016, an auditor noticed that MDK Inc. accidently recorded an insurance
expenditure of $60,000 as an expense instead of as a prepaid. The purchase was made on the
last day of the fiscal period. Write the journal entry that should be recorded in the next fiscal
period to correct the Prepaid Insurance account. Assume the tax rate is 30%.
Date
Account Title and Explanation
Debit
Credit
Analysis
Both ASPE and IFRS require the retrospective approach for both correction of prior period
errors and accounting policy changes. However, the prospective approach is required for a
change in accounting estimate. Why do you think the prospective approach is required for a
change in accounting estimate?
