A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively,immaterial amounts.This year the auditors estimate that the accrual is understated by an additional $60,000.In this year's audit $100,000 represents a material amount.Assuming that the entire understatement is to be recorded,following SEC SAB 108 the decrease in this year's income due to these understatements is:
A)$0
B)$60,000
C)$110,000
D)$140,000

Question

Quizplus · Accepted Answer

According to SEC SAB 108, the entire amount of the understatement should be recorded in the current year. Therefore, the total amount of understatement to be recorded in the current year is $30,000 + $50,000 + $60,000 = $140,000, which is a material amount of $100,000. Therefore, the decrease in this year's income due to these understatements is $140,000. Option D is the correct answer.

A Client's Previous Two Years of Financial Statements Understated Estimated