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

a.) Assume that the 2014 errors were not corrected and that no errors occurred in 2013. By what amount will 2014 income before income taxes be overstated or understated?

b.)Assume that no correcting entries were made at 12/31/14, or 12/31/15. Ignoring income taxes, by how much will retained earnings at 12/31/15 be overstated or understated?

Answer rating: 100% (QA)

a In 2014 Ending inventory has been overstated by 25000 it decreased COGS and depreciatio... View the full answer