Sue Company reported profit in 20X1 of $27,000 and in 20X2 of $32,000. Later it was discovered that the ending inventory for 20X1 was understated by $15,000. Disregard income taxes. The correct amounts of profit for 20X1 and 20X2 were which of the following?
$\begin{array} { l r r }
&& \underline { 20 X1 } && \underline { 20 X 2 } \\end{array}$
a)$\begin{array} { l r r } & \$ 27,000 & \$ 32,000 \\end{array}$
b)$\begin{array} { l r r } & \$ 42,000 & \$ 17,000 \\end{array}$
c) $\begin{array} { l r r }& \$ 12,000 & \$ 47,000 \\end{array}$
d)$\begin{array} { l r r } & \$ 17,000 & \$ 32,000 \
\end{array}$

Question

Sue Company reported profit in 20X1 of $27,000 and in 20X2 of $32,000. Later it was discovered that the ending inventory for 20X1 was understated by $15,000. Disregard income taxes. The correct amounts of profit for 20X1 and 20X2 were which of the following?
 $\begin{array} { l  r r } 
&& \underline { 20 X1 } && \underline { 20 X 2 } \\end{array}$
 a)$\begin{array} { l  r r } & \$ 27,000 & \$ 32,000 \\end{array}$
 b)$\begin{array} { l  r r } & \$ 42,000 & \$ 17,000 \\end{array}$
 c) $\begin{array} { l  r r }& \$ 12,000 & \$ 47,000 \\end{array}$
d)$\begin{array} { l  r r } & \$ 17,000 & \$ 32,000 \
\end{array}$

Quizplus · Accepted Answer

If the ending inventory for 20X1 was understated by $15,000, the cost of goods sold (COGS) for 20X1 was overstated by the same amount, leading to an understatement of profit for 20X1. Correcting this error increases 20X1's profit by $15,000 (from $27,000 to $42,000). This adjustment decreases 20X2's beginning inventory by $15,000, increasing COGS for 20X2 and reducing its profit by the same amount (from $32,000 to $17,000).

Sue Company Reported Profit in 20X1 of $27,000 and in 20X2