Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022 income before income taxes be overstated or understated? ["", "", "", ""] Assume that no correcting entries were made at December 31, 2021. Ignoring income taxes, by how much will retained earnings at December 31, 2022 be overstated or understated? ["", "", "", ""] Assume that no correcting entries were made at December 31, 2021 or December 31, 2022, and that no additional errors occurred in 2023. Ignoring income taxes, by how much will working capital at December 31, 2023 be overstated or understated?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Harvey Inc. is a calendar corporation. Its financial statements for the years 2021 and 2022 contained errors as follows:
| Year 2022 | Year 2021 | |
| Inventory at year end | 10,000 understated | 30,000 overstated |
| 8,000 understated | 25,000 overstated |
QUESTION:
- Assume that the proper correcting entries were made at December 31, 2021. By how much will 2022 income before income taxes be overstated or understated? ["", "", "", ""]
- Assume that no correcting entries were made at December 31, 2021. Ignoring income taxes, by how much will
retained earnings at December 31, 2022 be overstated or understated? ["", "", "", ""] - Assume that no correcting entries were made at December 31, 2021 or December 31, 2022, and that no additional errors occurred in 2023. Ignoring income taxes, by how much will
working capital at December 31, 2023 be overstated or understated?
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