Question

A company discovered in 2013 that it had overstated the inventory balance for Dec 31, 2011 by $10,000. The company had (incorrectly) reported Net Income to be $300,000 for 2011, and $400,000 for 2012. What are the corrected Net Incomes for 2011 and 2012

Answer 1

Corrected Net Income for 2011 = $290,000

Corrected Net Income for 2012 = $410,000

Step-by-step explanation:

Data provided in the question:

The overstated the inventory balance for Dec 31, 2011 = $10,000

The reported Net Income for 2011 = $300,000

The reported Net Income for 2012 = $400,000

Now,

Since the inventory is overstated in the year 2011, it will be subtracted from the reported incorrect Net Income for 2011

Thus,

Corrected Net Income for 2011 = $300,000 - $10,000

= $290,000

And, for the year 2012 the overstated inventory will be added to the reported Net Income for 2012

thus,

Corrected Net Income for 2012 = $400,000 + $10,000

= $410,000