JP Corporation had net income of $1,000,000 for 2012. After issuing its financial statements, the corporation realized that it had failed to include inventory from one of its small warehouses for two years. Specifically, it forgot to include $20,000 on December 31, 2011 and $30,000 on December 31, 2012. Which of the following is true regarding JP's 2011 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.

Question

Quizplus · Accepted Answer

The $20,000 inventory at the end of 2011 was not included, which means the cost of goods sold was overstated, leading to an understatement of net income by $20,000. However, the question asks about the impact on 2011 net income, and the $30,000 inventory at the end of 2012 does not affect 2011 net income. Therefore, the net income for 2011 was understated by $20,000, but since the choices do not reflect this, the closest correct choice is A, assuming a typo or misstatement in the options.

JP Corporation Had Net Income of $1,000,000 for 2012