Coombs, Inc

Multiple Choice

Coombs, Inc. is a calendar-year corporation whose financial statements for 2010 and 2011 included errors as follows:

Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2010, or December 31, 2011. Ignoring income taxes, by how much should Coombs's retained earnings be retroactively adjusted at January 1, 2012?

A) $27,000 increase
B) $27,000 decrease
C) $7,000 decrease
D) $3,000 decrease