During the audit of Virginia Company's 20B financial statements,the auditors discovered that the 20A ending inventory had been overstated by $10,000 and that the 20B ending inventory had been overstated by $8,000.Before the effect of these errors,20B pretax profit had been computed as $100,000.What should be reported as the correct 20B profit before taxes?

Question

Quizplus · Accepted Answer

The overstatement of the 20A ending inventory would have caused the 20A profit to be overstated and the 20B beginning inventory to be overstated, reducing 20B profit by $10,000. The overstatement of the 20B ending inventory increases 20B profit by $8,000. Therefore, the correct 20B profit before taxes is $100,000 - $10,000 + $8,000 = $98,000.

During the Audit of Virginia Company's 20B Financial Statements,the Auditors