Bella Ltd. is a calendar-year corporation. Bella uses a periodic inventory system. Its financial statements for
2017 contained errors as follows:

-Assume the 2017 errors are not discovered in 2018. Ending inventory at the 2018 year end is properly stated. By how much will 2018 net income be over or understated?

Question

Bella Ltd. is a calendar-year corporation. Bella uses a periodic inventory system. Its financial statements for
2017 contained errors as follows:
 
-Assume the 2017 errors are not discovered in 2018. Ending inventory at the 2018 year end is properly stated. By how much will 2018 net income be over or understated?

Quizplus · Accepted Answer

2018 net income will be understated by $4,000 because the overstatement of 2017 ending inventory will lead to an understatement of 2018 beginning inventory, which will in turn lead to an understatement of 2018 cost of goods sold and an overstatement of 2018 net income.

Bella Ltd Is a Calendar-Year Corporation