Question

An audit of the inventory records of Missouri Inc. identified a number of errors. These errors are summarized in Exhibit A below:

EXHIBIT A
Year	Net Income	Description
	Reported	of Error
2010	$120,000	Overstatement of ending inventory	$11,000
2011	$95,000	Understatement of ending inventory	$1,500
2012	$99,000	Understatement of ending inventory	$18,000
2013	$105,000	Overstatement of ending inventory	$20,000
2014	$120,000	Overstatement of ending inventory	$5,200

Instructions

As financial accountant for Missouri, you have been asked to calculate the corrected net income amounts for each of the five years based on the audit findings.

Answer 1

Answer ;

The net income is overstated as a result of overstatement of ending inventory as cost of goods sold is stated low which means net income before taxes is overstated by the amount of overstated inventory.

Correct net income for five years =

Year	Net income	Desciption	Under/Overstament	Adjusted net profit
2010	120000	Overstatement	11000	120000 -11000 = $109000
2011	95000	Understatement	1500	95000 + 1500 = $96500
2012	99000	Understatement	18000	99000 + 18000 = $117000
2013	105000	Overstatement	20000	105000 - 20000 = $85000
2014	120000	Overstatement	5200	120000 - 5200 = $114800