Question

Glacier Corporation discovered these errors in August of Year 3: Depreciation Overstated $2,500 4,000 Prepaid Expense Omitted $3,000 2,000 Assume all current items are two months in duration. Net Income for Year 2 was $18,000. Assume all errors are discovered in August of Year #3. The Year #2 books are closed. The net effect on Year #3 Beginning Retained Earnings caused by the August Year #3 correcting journal entries was:________. Select one:

a. $5,500
b. $6,500
c. $6,000
d. $8,500
e. $4,500

Answer 1

e. $4,500

Step-by-step explanation:

The net effect for the year 3 is shown below:

= Depreciation overstates in the year 1 + year 2 depreciation overstated - prepaid expenses omitted for the year 2 is

= $2,500 + $4,000 - $2,000

= $6,500 - $2,000

= $4,500

Therefore the net effect on the year 3 is $4,500

Hene, the correct option is e. $4,500

The other options are incorrect