During a year-end evaluation of the financial records of the Matthew Company for the year ended December 31, 2016, the following was discovered:
· Inventory on January 1, 2016, was understated by $6,000.
· Inventory on December 31, 2016, was understated by $18,000.
· Rent of $20,000 collected in advance on December 29, 2016, was included in income for
2016.
· A probable, reasonably estimated contingent liability of $30,000 was not recorded as of
December 31, 2016.
Net income for 2016 before any of the above items) was $250,000. What is the corrected amount of net income for
2016? Ignore income taxes.)
A) $300,000
B) $208,000
C) $212,000
D) $218,000

Question

Quizplus · Accepted Answer

The corrected net income is $212,000. The understatement of inventory on January 1, 2016, increases net income by $6,000. The understatement of inventory on December 31, 2016, decreases net income by $18,000. The inclusion of rent collected in advance in income for 2016 increases net income by $20,000. The contingent liability of $30,000 decreases net income by $30,000. The net effect of these adjustments is to decrease net income by $12,000, resulting in a corrected net income of $212,000.

During a Year-End Evaluation of the Financial Records of the Matthew