Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/20 and 12/31/21 contained the following errors: 2020 2021 Ending inventory $50,000 overstatement $80,000 understatement Depreciation expense 20,000 understatement 40,000 overstatement Assume that the 2020 errors were not corrected and that no errors occurred in 2019. By what amount will 2020 income before income taxes be overstated or understated? $30,000 understatement $30,000 overstatement $70,000 overstatement $70,000 understatement

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/20 and 12/31/21 contained the following errors: 2020 2021 Ending inventory $50,000 overstatement $80,000 understatement Depreciation expense 20,000 understatement 40,000 overstatement Assume that the 2020 errors were not corrected and that no errors occurred in 2019. By what amount will 2020 income before income taxes be overstated or understated? $30,000 understatement $30,000 overstatement $70,000 overstatement $70,000 understatement

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 35

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/20 and 12/31/21 contained the following errors:

	2020	2021
Ending inventory	$50,000 overstatement	$80,000 understatement

Depreciation expense

20,000 understatement

40,000 overstatement

Assume that the 2020 errors were not corrected and that no errors occurred in 2019. By what amount will 2020 income before income taxes be overstated or understated?

		$30,000 understatement
		$30,000 overstatement
		$70,000 overstatement
		$70,000 understatement

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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