Use the following information for questions 55 and 56.
Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/14 and 12/31/15 contained the following errors:
2014 2015
Ending inventory $25,000 overstatement $40,000 understatement
Depreciation expense 10,000 understatement 20,000 overstatement
Answer:
By $50,000 retained earnings at 12/31/15 is understated
Option c, $50,000 understatement
Explanation:
Given:
Ending inventory $25,000 overstatement $40,000 understatement
Depreciation expense 10,000 understatement 20,000 overstatement
To find:
The retained earnings amount to be overstated or understated at 12/31/15
When an amount is understated, it depicts the following two things,
Here, the reatianed earnings amount can be evaluated by the following step,
[tex]\$40,000 + \$10,000 = \$50,000 \text{ understatement }[/tex]
So, it can be finalised that the retained earnings of $50,000 is understated.
