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

question 65

Multiple Choice

A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively,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,following SEC SAB 108 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:

Stock Y

A placeholder name typically used to represent a generic or hypothetical stock or equity investment in examples or discussions.

Beta

A measure of a stock's volatility in relation to the overall market; indicating how much a stock’s price might swing.

Portfolio

An assortment of financial assets comprising stocks, bonds, commodities, alongside cash and cash equivalents, as well as closed-end funds and exchange traded funds (ETFs).