6. Bren Coo's beginning inventory at January 1, 2011, was understated by $26,000, and its'ending inventory was overstated by $52,000. Asa result, Bren's cost of goods sold for 2011 was
a. Understated by $26,000.
b. Overstated by $26,000.'
c. Understated by $78,000.
d. Overstated by $78,000.
7. On January 2, 2011,Air, Inc. agreed to pay its former president $300,000 under a deferred compensation arrangement. Air should have recorded this expense in 2010 but did
not do so. Air's reported income tax expense would have been $70,000 lower in 2010 had itproperly accrued this deferred compensation, In its December 3 L 2011 financial statements,Air should adjust the beginning balance of its retained earnings by a
a. $230,000 credit.
b. $230.000 debit.
c. $300,000 credit.
d. $370,000 debit.
4. Conn Co. reported a retained earnings balance of
$400,000 at December 31, 2010. In August 2011, Conn' determined that insurance premiums of $60,000 for the three-year period beginning January 1,2010, had been paid and fully expensed in 2010. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning
retained earnings in its 20 It statement of retained
4. (b) A correction of an error is treated as a prior
period adjustment and is reported in the financial statements
as an adjustment to the beginning balance of retained
earnings in the year the error is discovered. The adjustment
is reported net of the related tax effect. In 2010, insurance
expense of $60,000 was recorded. The correct 2010
insurance expense was $20,000 ($60,000 x 113). Therefore,
before taxes, 1/1/11 retained earnings is understated by
$40,000. The net of tax effect is $28,000 [$40,000 - (30% x
$40,000], so the adjusted beginning retained earnings is
$428,000 ($400,000 + $28,000).