Question: During 2012, Kelly Corporation discovered that ending inventory reported in its 2011 financial statements was understated by $10,000. How should Kelly account for this understatement?

During 2012, Kelly Corporation discovered that ending inventory reported in its 2011 financial statements was understated by $10,000. How should Kelly account for this understatement?

a. Adjust the beginning inventory balance in 2012 by

$10,000.

b. Restate the financial statements with corrected balances for all periods presented.

c. Adjust the ending balance in the 2012 retained earnings account.

d. Make no entry because the error will self-correct.

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