Question

"2016: Ending inventory was overstated by $60,000 while depreciation expense was overstated by $25,400. 2017: Ending inventory was understated by $6,500 while depreciation expense was understated by $4,800. By how much should retained earnings be adjusted on January 1, 2018?"

Answer 1

Answer:

$25,800 increase

Explanation:

The computation of the adjusted retained earning balance is shown below:

Ending inventory was overstated - no change

Add: Depreciation expense was overstated         $24,100

Add: Ending inventory was understated               $6,500

Less: Depreciation expense was understated     ($4,800)

Adjusted retained earning balance                     $25,800