If the inventory reported on a Gottleib Company's statement of financial position at December 31, 2010 is overstated by €1,200,000, the company's retained earnings balance at December 31, 2011 will be

Question

Quizplus · Accepted Answer

The overstatement of inventory in 2010 would have caused an overstatement of net income in 2010, which would increase retained earnings at the end of 2010. However, the error would correct itself in 2011 when the opening inventory is overstated, leading to an understatement of net income in 2011 by the same amount, thus leaving retained earnings at December 31, 2011 correct.

If the Inventory Reported on a Gottleib Company's Statement of Financial