After the issuance of its year 1 financial statements, Serenity Inc. discovered a computational error of $150,000 in the calculation of December 31, year 1 inventory. The error resulted in a $150,000 overstated in the cost of goods sold for the year ended December 31, year 1. In October, year 2, Serenity paid $500,000 to settle litigation initiated it during year 1. In the financial statements for year 2, the year 1 retained earnings balance, as previously reported, should be adjusted by (ignore income taxes):- a. $350,000 debit
b. $500,000 debit
c. $150,000 credit
d. $650,000 credit