Armstrong Inc. is a calendar-year corporation. Its financial statements for the

Question

Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/17 and 12/31/18 contained the following errors: 2017 2018 Ending inventory $50,000 overstatement $80,000 understatement Depreciation expense 20,000 understatement 40,000 overstatement Assume that the 2017 errors were not corrected and that no errors occurred in 2016. By what amount will 2017 income before income taxes be overstated or understated?

A) $70,000 overstatement

B) $30,000 overstatement

C) $70,000 understatement

D) $30,000 understatement

Explanation / Answer

Overstatement of 2017 income before income taxes = 50000+20000 = $70000 overstatement Option A is correct

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