In 2010, Garrison Corporation reported net income of $70,000.A recount of the company's inventories revealed that 2010 ending inventory was overstated by $10,000.What is Garrison's corrected net income?
A)$60,000
B)$80,000
C)$70,000
D)$75,000

Question

Quizplus · Accepted Answer

Since the ending inventory was overstated by $10,000, this means that expenses were also overstated by $10,000 (since inventory is recorded as an asset and expenses are reduced by the amount of inventory sold). Therefore, the corrected net income would be calculated as follows:

Net Income = Reported Net Income - Inventory Overstatement
Net Income = $70,000 - $10,000
Net Income = $60,000

Therefore, the correct answer is choice A.

In 2010, Garrison Corporation Reported Net Income of $70,000