In 20X6, Cathode Company, a calendar fiscal-year company, discovered that depreciation expense was erroneously overstated ($ 40,000)

Question:

In 20X6, Cathode Company, a calendar fiscal-year company, discovered that depreciation expense was erroneously overstated $\$ 40,000$ in both $20 X 4$ and $20 X 5$ for financial reporting purposes. Net income in $20 X 6$ is correct. The tax rate is $30 \%$. The error was made only for financial reporting, affecting depreciation and deferred income tax accounts., CCA had been recorded correctly, and thus there will be no change in taxes payable.

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Required:
1. Record the entry in $20 \times 6$ to correct the error.
2. Provide the comparative retained earnings statement for $20 \mathrm{X} 6$, including any required note disclosure.

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