Use the Following Information to Solve the Following Questions:
Shanti

question 127

Multiple Choice

Use the following information to solve the following questions:
Shanti Inc. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:
$$\begin{array} { l l l } &2020&2019\\\text { Ending inventory } & \$ 6,000 \text { overstated } & \$ 16,000 \text { overstated } \\\text { Depreciation experse } & \$ 4,000 \text { understated } & \$ 12,000 \text { overstated }\end{array}$$
-Assume that no correcting entries were made at December 31, 2019. Ignoring income taxes, by how much will retained earnings at December 31, 2020 be overstated or understated?

• A) $2,000 understated
• B) $18,000 understated
• C) $10,000 overstated
• D) $18,000 overstated

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Definitions:

Causal Connection

The relationship between a cause and its effect, denoting how one event is directly responsible for the occurrence of another.

Breach of Duty

The failure to act or perform one's duties as required by law or contract, leading to legal implications.

Assumption of Risk

A legal principle under which an individual acknowledges and accepts the risks associated with an activity, possibly diminishing their right to claim damages.

Equestrian

related to horse riding or the skills associated with riding, training, and handling horses.