Question

Al Dente Pasta Company overstated its inventory by $10 million at the end of 2021. The discovery of this error during 2022, before adjusting or closing entries, would require:_______.

Answer 1

Answer:

Retained earnings would be debited and inventory would be credited for $10 million each.

Explanation:

In the given scenario Al Dente Pasta Company overstated its inventory by $10 million.

This is an overstatement of assets of the company.

This also gives an understatement of the retained earnings of the company.

Adjusting entry in 2022 will now require Retained earnings would be debited and inventory would be credited for $10 million each.