Question

Sheridan, Inc. is a calendar-year corporation whose financial statements for 2020 and 2021 included errors as follows: Year Ending Inventory Depreciation Expense 2020 $254000 overstated $200000 overstated 2021 121000 understated 79500 understated Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2020, or at December 31, 2021. Ignoring income taxes, by how much should Sheridan's retained earnings be retroactively adjusted at January 1, 2022

Answer 1

Answer:

the retained earnings retroactively adjusted is $241,500

Explanation:

The computation of the retained earning retroactively adjusted is as follows:

Net income overstated -$54,000 ($254,000 - $200,000)

Net income understated  $41,500 ($121,000 - $79,500)

Inventory $254,000

Increase in retained earnings $241,500

Hence, the retained earnings retroactively adjusted is $241,500