The Financial Statements of Franklin Company Contained the Following Errors

Essay

The financial statements of Franklin Company contained the following errors: $\begin{array}{lll}\text { Item } & \text { December 31.2013 } & \text { December 31.2014 } \\\begin{array}{l}\text { Depreciation expense on office } \\\text { equipment }\end{array} & \$ 1,000 \text { understated } & \$ 900 \text { overstated }\end{array}$ Required:
A. Was net income for 2013 understated or overstated? Briefly explain your answer.
B. 1. Considering the effect of the errors of both years at December 31, 2014, is retained earnings overstated or understated, and by what amount?
2. Briefly explain your answer to part B(1).