ії. Casillas, Inc. is a calendar-year corporation. Its financial statements for the years 2011 and2010 contained errors as follows:201141Ending InventoryDepreciation Expense2010$3,000 overstated S8,000 overstated$2,000 understated| $6,000 overstatedAssume that no correcting entries were made at December 31, 2010. Ignoring income taxes, byhow much will retained earnings at December 31, 2011 be overstated or understated?a. $1,000 understatedb. $5,000 overstatedc. S5,000 understatedd. $9,000 understated

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Asked Jan 31, 2019
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ії. Casillas, Inc. is a calendar-year corporation. Its financial statements for the years 2011 and
2010 contained errors as follows:
201141
Ending Inventory
Depreciation Expense
2010
$3,000 overstated S8,000 overstated
$2,000 understated| $6,000 overstated
Assume that no correcting entries were made at December 31, 2010. Ignoring income taxes, by
how much will retained earnings at December 31, 2011 be overstated or understated?
a. $1,000 understated
b. $5,000 overstated
c. S5,000 understated
d. $9,000 understated
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ії. Casillas, Inc. is a calendar-year corporation. Its financial statements for the years 2011 and 2010 contained errors as follows: 201141 Ending Inventory Depreciation Expense 2010 $3,000 overstated S8,000 overstated $2,000 understated| $6,000 overstated Assume that no correcting entries were made at December 31, 2010. Ignoring income taxes, by how much will retained earnings at December 31, 2011 be overstated or understated? a. $1,000 understated b. $5,000 overstated c. S5,000 understated d. $9,000 understated

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Expert Answer

Step 1

First step is to compute the effect of errors of 2010 on the retained earnings in 2010.

The errors effect has been as under:

*Ending inventory of 2010 overstated, having an effect of increase in income by $ 8000.

* Depreciation expenses oversttaed, having an effect of decrease in income by $ 6000.

Net effect on income is increase in Income by $ 2000, which resulted in overstated retained earnings by $ 2000 in 2010.

Step 2

Next step is to compute the effect of errors in 2011.

* Ending inventory of 2010 Overtstated resulted in overstated begining inventory of 2011, resulting in decrease in income of 2011 by $ 8000.

*Overstated ending inventory of 2011 resulted in increasse in income of 2011 by $ 3000.

* Understated depreciation expen...

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