During the audit of Montane Company's 2010 financial statements,the auditors discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010 beginning inventory was overstated by $5,000.Before the effect of these errors,2010 pretax income had been computed as $100,000.What should be reported as the correct 2010 pretax income before taxes?

Question

Quizplus · Accepted Answer

The overstatement of the beginning inventory causes cost of goods sold to be overstated by $5,000; the overstatement of the ending inventory causes cost of goods sold to be overstated by $8,000. Therefore cost of goods sold is understated by $3,000 and net income is overstated by $3,000.

During the Audit of Montane Company's 2010 Financial Statements,the Auditors