Question: Powell Company had the following errors over the last two years: 2011: Ending inventory was overstated by $39,000 while depreciation expense was overstated by $25,000

Powell Company had the following errors over the last two years:
2011:

Ending inventory was overstated by $39,000 while depreciation expense was overstated by $25,000
2012:

Ending inventory was understated by $12,500 while depreciation expense was understated by $5,000.

By how much should retained earnings be adjusted on January 1, 2013? (Ignore taxes)

a. Decrease by $32,500

b. Increase by $32,500

c. Decrease by $14,200

d. Increase by $26,500

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