During the year$-$end $20$X$2$ audit, Athens Sun Company's auditor discovered that the company had incorrectly recorded a patent

purchased in $20$X$1$ as a inventory. The patent cost $$60,000,$ has an estimated useful life of $3$ years and no salvage value. The company

did not record amortization expense for the asset in $20$X$1$ or $20$X$2.$ Athens Sun manutactures custom solar panels and uses the

specific identification inventory method. Based on this information, how should Athens Sum correct its $20$X$2$ balance sheet for these

errors?

Increase retained earnings by $$40,000,$ increase patent by $$60,000,$ and decrease $202$ operating expenses by $$20,000.$

Increase $20$X$1$ operating expenses by $$20,000$ for $20x1$ and $202,$ decrease retained earnings by $$20,000,$ and increase

patent by $$60,000.$

Increase retained earnings by $$40,000$ and increase intangible assets by $$40,000.$

Decrease retained earnings by $$40,000$ and decrease patent by $$40,000.$