Eliza Company discovered the following errors in 2016: · Ending inventory at December 31, 2015, was understated by $2,000.
· Accrued expenses of $3,000 were not recorded at December 31, 2015.
Eliza reported net income of $45,000 for the year 2015. What is the amount of the corrected net income ignoring income taxes) for 2015?
A) $45,000
B) $40,000
C) $46,000
D) $44,000

Question

Quizplus · Accepted Answer

The corrected net income for 2015 would be $44,000. The understatement of ending inventory by $2,000 would have caused the cost of goods sold to be overstated, and thus net income to be understated by $2,000. Correcting this error would increase net income by $2,000. The failure to record accrued expenses of $3,000 would have caused expenses to be understated, and thus net income to be overstated by $3,000. Correcting this error would decrease net income by $3,000. Therefore, the net effect of these corrections is a decrease in net income by $1,000 ($2,000 - $3,000), making the corrected net income $44,000 ($45,000 - $1,000).

Eliza Company Discovered the Following Errors in 2016: · Ending