After the Financial Statements Were Prepared for 2012, Wickham Ltd

Multiple Choice

After the financial statements were prepared for 2012, Wickham Ltd.discovered that an error had been made during the year-end inventory count and one room containing $40,000 worth of goods, at cost, had been missed.A review of the accounting records showed that all purchases had been recorded.The company's tax rate is 40%.If the error is not corrected, what is the effect of this error on 2013 closing retained earnings?

A) $16,000 overstated
B) $24,000 understated
C) $40,000 understated
D) No effect