Question

The accountant for a company made numerous inventory errors over the years. The auditor has gathered...

The accountant for a company made numerous inventory errors over the years. The auditor has gathered the following information.

Reported Income Ending inventory overstatement or (understatement)
20X1 $80,000 -
20X2 $84,200 9,900
20X3 $88,600 (11,100)

What is the correct net income for 20X2?

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Homework Answers

Answer #1

Answer: $74,300

Explanation:

It is given that ending inventory of 20X2 is overstated by $9,900.

Overstatement of ending inventory will result in understatement of cost of goods sold. when cost of goods sold is understated, it will result in overstatement of net income because cost is shown at less amount.

Therefore, in the given case, Net income of the company is overstated by $9,900.
Hence, Correct net income for 20X2= Reported net income - $9,900

= 84,200 - 9,900

= $74,300

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