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In: Accounting

XYZ Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the...

XYZ Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors:

                                        Dec. 31, 2020             Dec. 31, 2021   

     Ending inventory $198,000 overstated $219,000 understated

     Depreciation expense 126,000 overstated               —

                                                    

No corrections have been made for any of the errors. Ignore income tax considerations.

The total effect of the errors on the balance of XYZ’s retained earnings at December 31, 2021 is overstated or understated by          _______

Solutions

Expert Solution

Date Particulars Effect on Retained Earning
Dec 31, 2020 Ending Inventory Overstated $                   198,000
Dec 31, 2020 Depreciation overstated $                 (126,000)
Jan 1, 2021 Opening Inventoy Overstated $                 (198,000)
Dec 31, 2021 Ending Inventory Overstated $                   219,000
Dec 31, 2021 Net Effect on Retained Earnings $                     93,000

Therefore the retained earning as on Dec 31, 2021 is overstated by $93,000

For any clarification, please comment. Kindly Up Vote


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