Chap020 (accounting) 72 - 73 Powell Company had the...

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73. Powell Company had the following errors over the last two years: 2009: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000. 2010: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000. By how much should retained earnings be adjusted on January 1, 2011? (Ignore taxes) A. Increase by $15,000. B. Decrease by $25,000. C. Decrease by $6,000. D. Increase by $25,000. AACSB: Analytic Bloom's: Application Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery.
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Unformatted text preview: Level of Learning: Hard 74. Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31, 2011. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2011, would be: A. Overstated by $14 million. B. Understated by $14 million. C. Overstated by $6 million. D. Understated by $6 million. AACSB: Analytic Bloom's: Analysis Learning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors; regardless of the type of error or the timing of its discovery. Level of Learning: Hard...
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