Casillas, Inc. is a calendar-year corporation. Its financial statements for the years 2011 and 2010
contained errors as follows: Ending Inventory
Depreciation Expense 2011
$3,000 overstated
$2,000 understated 2010
$8,000 overstated
$6,000 overstated Assume that the proper correcting entries were made at December 31, 2010. By how much will
2011 income before taxes be overstated or understated?
Assume that no correcting entries were made at December 31, 2010. Ignoring income taxes, by how
much will retained earnings at December 31, 2011 be overstated or understated?