Question

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

2016: Ending inventory was overstated by $52,500 while depreciation expense was overstated by $24,100.
2017: Ending inventory was understated by $6,500 while depreciation expense was understated by $5,000.
By how much should retained earnings be adjusted on January 1, 2018? (Ignore taxes)

Multiple Choice

Decrease by $25,600.

Increase by $46,000.

Increase by $25,600.

Decrease by $28,800.

Answer 1

Particulars	Amount ($)
Overstatement of Ending Inventory of 2016 self-corrected in 2017 ( No Adjustment required )	-
Add : 2016 Depreciation expense overstated	$24,100
Add : 2017 Ending Inventory understated; Cost of goods sold overstated	$6,500
Less : 2017 Depreciation expense understated	($5,000)
Net increase to retained earnings on January 1, 2018	$25,600

Hence, The Answer is “Increase by $25,600 “