The World Company's financial statements for 2014 and 2015 contain the following errors:
$\begin{array} { l l l } &2015&2014\
\text { Ending Inventory } & \$ 6,000 \text { overstated } & \$ 16,000 \text { overstated } \
\text { Insurance Expense } & \$ 4,000 \text { understated } & \$ 12,000 \text { overstated }
\end{array}$
-If the proper correcting entries were made at the end of 2014,how much will 2015 income before taxes be overstated or understated?
A)$2,000 understated
B)$2,000 overstated
C)$10,000 understated
D)$10,000 overstated

Question

Quizplus · Accepted Answer

The 2015 income before taxes will be overstated by $10,000. This is because the ending inventory for 2015 is overstated by $6,000, which would cause the cost of goods sold to be understated by the same amount, overstating the income. Additionally, the insurance expense for 2015 is understated by $4,000, which also overstates the income. The errors from 2014 would have been corrected by the end of that year and do not directly affect the 2015 income calculation. Therefore, the total overstatement for 2015 is $6,000 + $4,000 = $10,000.

The World Company's Financial Statements for 2014 and 2015 Contain