In $2025,$ Crane Company discovered an error while preparing its $2025$ financial statements. A building constructed at the beginning of

$2024$ costing $$1220100$ has not been depreciated. The estimated useful life of the building is $30$ years with no salvage value. Straight$-$

line depreciation is used. Crane properly included depreciation on its tax return also using straight$-$line depreciation. Income tax

payable was also reported correctly at a tax rate of $20\%.$ Income before depreciation expense in $2025$ was $$320000.$

What was the impact on the following accounts at the start of $2025?$

Accumulated Depreciation was overstated by $$40670$ and net income was understated by $$40670.$

Accumulated Depreciation was understated by $$81340$ and Retained Earnings was overstated by $$32536.$

Accumulated Depreciation was understated by $$40670$ and Retained Earnings was overstated by $$32536.$

Accumulated Depreciation was understated by $$40670$ and net income was overstated by $$40670.$