During Year 1, ABC Inc

Multiple Choice

During Year 1, ABC Inc.'s ending inventory was overstated by $10,000. During Year 2, ABC Inc.'s ending inventory was understated by $20,000. Assuming that the Year 2 books have been closed, the adjustment to Year 2 financial statements would include:

A) A $20,000 decrease to ending inventory and retained earnings.
B) A $20,000 increase to ending inventory and retained earnings.
C) A $30,000 decrease to ending inventory and retained earnings.
D) A $30,000 increase to ending inventory and retained earnings.