Green Company overstated its inventory by $50 million at the end of 2018. The discovery of this error during 2019, before adjusting or closing entries, would require:
A) An increase in retained earnings.
B) A prospective adjustment in the 2019 income statement.
C) A debit to inventory of $50 million.
D) None of these answer choices are correct.

Question

Quizplus · Accepted Answer

In 2019, retained earnings would be debited for $50 million for the 2018 effect on net income (before tax), and 2019 beginning inventory would be credited for $50 million.

Green Company Overstated Its Inventory by $50 Million at the End