Question

Risers Inc. reported total assets of $2,400,000 and net income of $320,000 for the current year. Risers determined that inventory was overstated by $24,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?

a. $2,400,000 and $320,000.
b. $2,400,000 and $344,000.
c. $2,376,000 and $296,000.
d. $2,424,000 and $344,000.

Answer 1

After correcting the overstatement of inventory, the total assets for Risers Inc. would be $2,376,000, and the net income would be $296,000 for the year.

Step-by-step explanation:

The student has asked about the corrected amount for total assets and net income for Risers Inc., given that inventory was overstated by $24,000 at the beginning of the year. To correct the financial statements, we need to subtract the overstatement from the total assets. This makes the corrected total assets equal to $2,400,000 - $24,000 = $2,376,000. Since net income is affected by inventory (via the cost of goods sold), the overstatement of inventory would have reduced the cost of goods sold, overestimating the net income. The correction should add the overstated amount to the cost of goods sold, which decreases net income by $24,000. Thus, the corrected net income is $320,000 - $24,000 = $296,000.

Based on these adjustments, the correct answer is:
c. $2,376,000 and $296,000.