Walter Co. made the following errors in 2016: · Ending inventory was overstated by $2,000.
· Beginning inventory was understated by $6,000.
· Purchases were overstated by $3,000.
Reported net income was $20,000. What is the correct amount of 2016 net income?
A) $19,000
B) $21,000
C) $15,000
D) $4,000

Question

Quizplus · Accepted Answer

The net income is affected by inventory and purchases errors. Overstated ending inventory increases net income by $2,000, understated beginning inventory increases net income by $6,000, and overstated purchases decrease net income by $3,000. Adjusting these errors: $20,000 + $2,000 + $6,000 - $3,000 = $25,000. However, the correct calculation should be $20,000 - $2,000 + $6,000 - $3,000 = $21,000. The correct choice is B, not C.

Walter Co Made the Following Errors in 2016: · Ending Inventory