Question

Goldfinch Inc. reported net incomes for the last three years as follows:

2018, $ 62,000; 2019, $ 63,000; 2020, $ 60,000 In reviewing the accounts in 2021 (after the books for the prior year had been closed), you find that the following errors have been made:

2018 2019 2020

Overstatement of ending inventory $ 7,000 $ 8,500 $ 4,000

Understatement of accrued advertising expense 1,100 2,000 1,200

Instructions:

a) Calculate corrected net income for 2018: $____________________

b) Calculate corrected net income for 2019: $____________________

c) Calculate corrected net income for 2020: $____________________

d) Prepare the entry required in 2021 to correct the books. Ignore income taxes.

Answer 1

Answer:

(a)		2018	2019	2020
	Net income	$62,000	$63,000	$60,000	$185,000
	Less: Over statement of Ending Inventory	$7,000	$8,500	$4,000
	Add: Over Statement of Opening Inventory		$7,000	$8,500
	Less: understatement of accrued expense	$1,100	$2,000	$1,200
	Corrected Net Income	$53,900	$59,500	$63,300	$176,700
(b)					$8,300
	Particulars	Debit	Credit
	Retained Earnings A/c	$8,300
	To, Merchandise Inventory		$4,000
	To, Accrued expense		$4,300