Question

9-10. Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/14 and 12/31/15 contained the following errors: 2014 2015 Ending inventory $25,000 overstatement $40,000 understatement Depreciation expense 10,000 understatement 20,000 overstatement 9. Assume that the 2014 errors were not corrected and that no errors occurred in 2013. By what amount will 2014 income before income taxes be overstated or understated? a. $35,000 overstatement b. $15,000 overstatement c. $35,000 understatement d. $15,000 understatement

Answer 1

Consider the following explanation

Step-by-step explanation:

If these error are nit corrected, the income before taxes be overstated by $ 35,000 .

As, Overstatement of Ending Inventory will affect the gross profit (Increase) by $ 25,000 and then understatement of Depreciation will further increase Net Profit by $ 10,000