A Client's Previous Two Years of Financial Statements Understated Estimated

question 61

Multiple Choice

A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively,both immaterial amounts.This year,the auditors estimate that the accrual is understated by an additional $60,000.In this year's audit,$100,000 represents a material amount.Assuming that the entire understatement is to be recorded,the decrease in this year's income due to these understatements is:

• A)$0.
• B)$60,000.
• C)$110,000.
• D)$140,000.

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Definitions:

Special Equipment

Custom or unique machinery, tools, or apparatus required for specific tasks or production processes not typically found in generic manufacturing settings.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Segment Margin

refers to the profit generated by a specific segment of a business, considering both direct and indirect costs attributed to that segment.

Allocated General Overhead

Refers to the portion of general expenses that are designated to specific projects or departments within an organization.