Due to an Error in Computing Depreciation Expense,Prewitt Corporation Overstated

question 78

Multiple Choice

Due to an error in computing depreciation expense,Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31,2016.Prewitt has a tax rate of 30%.Prewitt's retained earnings as of December 31,2016,would be:

• A)Overstated by $14 million.
• B)Understated by $14 million.
• C)Overstated by $6 million.
• D)Understated by $6 million.

---

Definitions:

Raw Materials Inventory

Goods or components that a company uses in the manufacture of finished products.

Completed Goods

Final products that have undergone the manufacturing process and are ready to be sold or distributed.

Cost

The total expense incurred in producing a product or providing a service, including materials, labor, and overhead charges.

Manufacturing Inventories

Materials, work-in-progress, and finished goods that a company holds for the purpose of future production or sale.