The correct net income for Sarah Corp. was $53,500. The company reported incorrect net income because beginning inventory was understated by $2,500, purchases were overstated by $2,000, and ending inventory was overstated by $2,000. What net income did Sarah Corp. report?

Question

Quizplus · Accepted Answer

The net income was affected by inventory and purchase errors. Understating beginning inventory increases net income by $2,500, overstating purchases decreases net income by $2,000, and overstating ending inventory decreases net income by $2,000. The net effect is a decrease of $1,500, so reported net income was $53,500 + $1,500 = $56,000.

The Correct Net Income for Sarah Corp