JP Corporation had net income of $1,000,000 for 2016.After issuing its financial statements,the corporation realized that it had failed to include inventory from one of its small warehouses for two years.Specifically,it forgot to include $20,000 on December 31,2015 and $30,000 on December 31,2016.Which of the following is TRUE regarding JP's 2015 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.

Question

Quizplus · Accepted Answer

The $20,000 inventory omission on December 31, 2015, means that the cost of goods sold was overstated, leading to an understatement of net income by $20,000. However, the question asks about the impact on 2015 net income, and the $30,000 omission in 2016 does not affect 2015. Therefore, the net income for 2015 was understated by $10,000 due to the $20,000 inventory omission.

JP Corporation Had Net Income of $1,000,000 for 2016