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 no correcting entries were made at the end of 2014,by how much will retained earnings be overstated or understated at the end of 2015? Ignore tax consequences.

Question

Quizplus · Accepted Answer

The overstatement of ending inventory in 2014 will result in an overstatement of cost of goods sold in 2015, which will lead to an understatement of net income in 2015. The understatement of insurance expense in 2015 will result in an overstatement of net income in 2015. The net effect of these two errors will be an understatement of retained earnings at the end of 2015.

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