The accountant for the Daneen Company made the following errors related to purchases of merchandise and ending inventory in 2016:
1) A $3,100 purchase of merchandise on credit early in 2015 was recorded and included in ending inventory at December 31, 2016.
2) A $2,750 purchase of merchandise on credit in 2014 was recorded, but it was not included in the end-of-year physical inventory count.
Assuming a periodic inventory system, Daneen Company's 2016 net income will be

Question

Quizplus · Accepted Answer

The net effect of the errors is an overstatement of net income by $350. The first error overstates ending inventory by $3,100, which would decrease the cost of goods sold and overstate net income. The second error, by not including the $2,750 purchase in inventory, understates ending inventory, which increases the cost of goods sold and understates net income. The net effect is an overstatement of net income by the difference between the two errors, which is $350 ($3,100 - $2,750).

The Accountant for the Daneen Company Made the Following Errors