A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively,both immaterial amounts.This year,the auditors estimate that the accrual is understated by an additional $60,000.In this year's audit,$100,000 represents a material amount.Assuming that the entire understatement is to be recorded,the decrease in this year's income due to these understatements is:
A)$0.
B)$60,000.
C)$110,000.
D)$140,000.

Question

Quizplus · Accepted Answer

The decrease in this year's income is $140,000, which includes the current year's understatement of $60,000 plus the cumulative effect of the previous years' understatements ($30,000 + $50,000). Even though the past years' amounts were immaterial individually, their cumulative effect, along with the current year's understatement, needs to be corrected in the current year once identified.

A Client's Previous Two Years of Financial Statements Understated Estimated