On January 1, 2021, Heaven Inc. reported the following shareholders' equity:
Preference share capital (P75 par value, 20,000 shares) P 1,500,000
Ordinary share capital (P25 par value, 100,000 shares) 2,500,000
Share premium 3,000,000
Retained earnings 2,250,000
At the beginning of 2021, Heaven Inc sold 20,000 additional ordinary shares for P45 per share.
It was discovered late in 2021 that 2020 depreciation expense was overstated by 500,000.
Heaven Inc. had a net income of P2,000,000 for 2021.
It also declared cash dividend of P500,000 on preference shares and P1,000,000 on its ordinary shares during 2021.
The overstatement of 2020 depreciation expense will:
A.
understate 2020 net income and retained earnings by P500,000
B.
overstate 2020 net income and retained earnings by P500,000
C. understate 2020 net income and overstate retained earnings by P500,000
D. no effect on net income and retained earnings