Bethany Corp. reported $80,000 of net income for 2014. The following errors were then discovered:
Ending 2014 accrued expense was overstated by $2,000.
2014 earned revenue was overstated by $3,000.
Ending 2014 prepaid expense was overstated by $500.
Ignoring income taxes, the correct 2014 net income is
A) $85,500
B) $84,500
C) $78,500
D) $76,500

Question

Bethany Corp. reported $80,000 of net income for 2014. The following errors were then discovered: 
Ending 2014 accrued expense was overstated by $2,000.
2014 earned revenue was overstated by $3,000.
Ending 2014 prepaid expense was overstated by $500.
 Ignoring income taxes, the correct 2014 net income is
A) $85,500
B) $84,500
C) $78,500
D) $76,500

Quizplus · Accepted Answer

The net income should be adjusted by correcting the errors: decrease net income by $3,000 (overstated revenue), increase by $2,000 (overstated accrued expense), and increase by $500 (overstated prepaid expense). The correct net income is $80,000 - $3,000 + $2,000 + $500 = $78,500.