module 7 wiley (2009) pg 126 shows the explanation to the answer of an earlier example involving the change in accounting principle and its retrospective treatment in the financials for Falk corporation. My question is regarding the adjustment of the tax liability account. I don't understand why 08's b/s Liability account (which equals the 40% tax expense amount) suddenly increases by the $800 adjustment already applied to 07's tax liability. How do i know that? in the book 07's tax expense goes up exactly by $800 from $5,200 (prior to the change in account principle) to $6,000. **im aware tax exp and tax liability are almost never the same in reality due to temporary and permanent differences, this example seems to make things simple by having tax exp = tax liab** So The $800 recognized in 07' and now in 08' doesn't make sense to me, maybe im not reading it correctly. In fact, I landed at this problem from google books, so i dont have access to the full problem. I can only see the solution and the explanations. here's the link http://books.google.com/books?id=UFvMVAEP8p4C&pg=PA461&a mp;lpg=PA461&dq=what+is+the+incremental+borrowing+rate,+ capital+leases&source=bl&ots=bJUlevAKFz&sig=3YRO mZyGy59Y5LYHGaKCksRO6TE&hl=en&ei=8ZXoSsq1AZOmlAer88m QCA&sa=X&oi=book_result&ct=result&resnum=1&a mp;ved=0CBAQ6AEwAA#v=onepage&q=module%207&f=false

and this is a bit of what im looking at ...

.........................Income Statement

................adjusted 08.............adjusted 07

tax exp...........$9200...................$6000

.........................Balance Sheet

................adjusted 08.............adjusted 07

tax liab...........$10,000*................$6,000

*= 9,200 + 800. Even though the $800 were already considered into the $6,000 because this is the adjusted amount after the change in accounting principle... :/