Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2018 and 2017 contained errors as follows:
2018 2017
Ending inventory $9,000 overstated $24,000 overstated
Depreciation expense $6,000 understated $18,000 overstated
A. Assume that the proper correcting entries were made at December 31, 2017. By how much will 2018 income before taxes be overstated or understated?
a. $ 3,000 understated
b. $ 3,000 overstated
c. $ 6,000 overstated
d. $15,000 overstated
B Assume that no correcting entries were made at December 31, 2017. Ignoring income taxes, by how much will retained earnings at December 31, 2018 be overstated or understated?
a. $ 3,000 understated
b. $22,500 overstated
c. $22,500 understated
d. $27,000 understated
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