Under FASB ASC 606-10-25-1 and ASC 250-10-45-23, customer deposits must be recorded as contract liabilities until the related performance obligations are satisfied, and prior period errors require retrospective restatement. The $350,000 of customer deposits incorrectly recorded as revenue in 2025 overstated revenues and retained earnings while understating liabilities. The correct treatment requires restating 2025 by decreasing revenue $350,000 and increasing contract liabilities $350,000, adjusting 2026 beginning retained earnings for the after-tax effect, and disclosing the nature of the error and its impact on each financial statement line item and EPS for each period presented. Option A is incorrect because it corrects prospectively when retrospective restatement is required for material errors. Option C is incorrect because it records the adjustment through 2026 revenue rather than restating 2025. Option D is incorrect because customer deposits are liabilities under GAAP, not restricted equity. The professional framework for revenue recognition requires careful assessment of when control transfers to customers, with unearned amounts reported as contract liabilities until performance obligations are satisfied.

Under FASB ASC 250-10-45-23, the correction of a depreciation error requires retrospective restatement with the cumulative effect recorded as an adjustment to beginning retained earnings. The equipment should have been depreciated at $200,000 per year ($1,000,000 ÷ 5 years) but was only depreciated at $100,000 per year ($1,000,000 ÷ 10 years), resulting in $100,000 of understated depreciation expense and overstated net income in 2025. The correct journal entry debits retained earnings $100,000 and credits accumulated depreciation $100,000 to record the cumulative understatement of depreciation through December 31, 2025. Option A is incorrect because it only corrects 2026 depreciation prospectively rather than correcting the prior period error. Option C is incorrect because it records two years of catch-up depreciation ($200,000) when only one year (2025) requires correction through retained earnings. Option D is incorrect because it reverses the direction of the adjustment - depreciation was understated, not overstated. The professional framework requires calculating the cumulative effect of the error through the beginning of the current period and recording that amount as an adjustment to beginning retained earnings.

Under FASB ASC 606-10-25-1, revenue is recognized when performance obligations are satisfied, which for a one-year support contract beginning January 1, 2026, means no revenue should have been recognized in 2025. The $400,000 incorrectly recognized as revenue in December 2025 overstated 2025 net income and retained earnings while understating contract liabilities. The correct journal entry on January 1, 2026, debits retained earnings $400,000 and credits deferred revenue (contract liability) $400,000 to reverse the prior-period revenue recognition error and establish the proper liability. Option A is incorrect because it attempts to reclassify cash rather than correcting the revenue recognition error. Option C is incorrect because it records the reversal through 2026 income rather than as a prior period adjustment to retained earnings. Option D is incorrect because it reverses the debit and credit, which would increase rather than decrease equity. The professional framework for revenue recognition under ASC 606 requires careful analysis of when performance obligations are satisfied, with contract liabilities recorded for cash received before performance.

Under FASB ASC 250-10-45-23, prior period errors must be corrected through retrospective restatement of all prior periods presented. The $250,000 inventory understatement in 2025 caused ending inventory and total assets to be understated by $250,000 and cost of goods sold to be overstated by $250,000, resulting in understated net income. The correct treatment requires restating the 2025 comparative financial statements by increasing ending inventory and total assets by $250,000, decreasing COGS by $250,000, and adjusting 2026 beginning retained earnings for the after-tax effect of the increased 2025 net income. Option A is incorrect because ASC 250 prohibits correcting prior period errors through current period adjustments when comparative statements are presented. Option C is incorrect because it fails to restate the 2025 comparative statements as required by ASC 250-10-45-23. Option D is incorrect because it neither restates prior periods nor provides the required disclosures under ASC 250-10-50-7. The professional framework for error corrections requires retrospective restatement of all periods presented, adjustment of beginning retained earnings for the cumulative effect, and comprehensive disclosure of the nature and impact of the error.

Under FASB ASC 360-10-35-4, equipment must be capitalized and depreciated over its useful life rather than expensed immediately. The $500,000 of equipment incorrectly expensed as repairs in 2025 should have been capitalized and depreciated for six months (July 1 - December 31, 2025), resulting in depreciation expense of $50,000 ($500,000 ÷ 5 years × 6/12 months). The correct treatment requires restating 2025 by increasing PP&E $500,000, decreasing repairs expense $500,000, and recognizing depreciation expense of $50,000, resulting in a net increase to 2025 income of $450,000 with corresponding adjustments to 2026 beginning retained earnings. Option B is incorrect because it prohibits restatement when ASC 250 actually requires it for material errors. Option C is incorrect because it fails to record 2025 depreciation expense for the six months the asset was in service. Option D is incorrect because it reverses the proper treatment and suggests expensing is preferable when capitalization is required under GAAP. The professional framework for fixed asset accounting requires capitalizing all costs necessary to prepare an asset for its intended use, with systematic depreciation over the asset's useful life.

Under FASB ASC 830-30-45-12, foreign currency translation adjustments must be reported in other comprehensive income (OCI) as a component of accumulated other comprehensive income (AOCI), not in net income. The $120,000 translation adjustment incorrectly recorded in 2025 net income overstated earnings and understated OCI by the same amount. The correct treatment requires restating 2025 by decreasing net income $120,000 and increasing OCI $120,000, with a corresponding adjustment to 2026 beginning retained earnings to reflect the lower 2025 net income, along with required error-correction disclosures under ASC 250-10-50-7. Option A is incorrect because it suggests recording the correction in 2026 income rather than restating 2025. Option C is incorrect because it reverses the direction of the correction - translation adjustments should move from net income to OCI, not vice versa. Option D is incorrect because it corrects prospectively without restatement and fails to provide required quantitative disclosures. The professional framework for foreign currency translation requires careful segregation of translation adjustments in OCI from transaction gains and losses that flow through net income.

Under FASB ASC 720-35-25-1, advertising costs are generally expensed as incurred or when the advertising first takes place. The $90,000 of advertising costs that ran in 2025 but were incorrectly classified as prepaid expense at December 31, 2025, resulted in overstated assets and understated 2025 operating expenses. The correct journal entry on January 1, 2026, debits retained earnings $90,000 and credits prepaid expense $90,000 to reverse the overstated asset and reduce equity for the prior-period expense omission. Option A is incorrect because it records the adjustment through 2026 expense rather than as a prior period adjustment to retained earnings. Option C is incorrect because it increases rather than decreases the prepaid expense asset. Option D is incorrect because it fails to reverse the prepaid expense asset that was incorrectly recorded. The professional framework for advertising costs requires immediate expensing when the advertising takes place, with very limited exceptions for direct-response advertising that meets specific capitalization criteria.

Under FASB ASC 730-10-25-1, research and development costs must be expensed as incurred and cannot be capitalized as intangible assets. The $600,000 of R&D costs incorrectly capitalized in 2025 resulted in overstated assets and understated expenses, thereby overstating 2025 net income and retained earnings. The correct treatment requires retrospectively restating the 2025 comparative financial statements by decreasing intangible assets by $600,000 and decreasing retained earnings by $600,000 (the after-tax effect would be considered in practice), with appropriate error-correction disclosures under ASC 250-10-50-7. Option A is incorrect because it treats the correction as a current period expense rather than restating the prior period. Option C is incorrect because R&D costs cannot be reclassified as prepaid expenses - they must be expensed immediately under ASC 730. Option D is incorrect because it only addresses cash flow classification without correcting the fundamental error of capitalizing R&D costs. The professional framework for R&D accounting requires immediate expensing of all research and development costs as incurred, with no exceptions for capitalization.