Ending Inventory for 20x0 Is Overstated in Error by $4,000

question 29

Essay

Ending inventory for 20x0 is overstated in error by $4,000 due to a faulty count and costing.The tax rate is 30%.Assume the same accounting methods for both financial reporting and taxes.The error is discovered late in 20x1.Retained earnings at 1/1/x0 was $20,000, and reported earnings (both before correction of error)are: 20x0, $5,000; 20x1, $6,000.
Prepare the comparative retained earnings statements for 20x0 and 20x1.The error overstates 20x0 earnings $4,000 before tax and $2,800 after tax.

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Definitions:

Business Credit

The ability of a business to obtain goods, services, or money based on the trust that payment will be made in the future.

Tolerance for Ambiguity

The ability of an individual to remain comfortable and continue to function effectively in situations that are uncertain, unknown, or unclear.

Internal Locus

A psychological attitude where an individual believes that they can control their life and outcomes rather than external forces.