Question

wilmington company reported pretax income of $28,600 during 2021 and $33,700 during 2022. later it was discovered that the ending inventory for 2021 was understated by $3,800 (and not corrected in 2021). what is the correct pretax income for each year?

Answer 1

The correct pretax income for 2021 is $32,400, while the correct pretax income for 2022 is $33,700.

Step-by-step explanation:

To find the correct pretax income for each year, we need to account for the understatement of ending inventory in 2021. The understatement of $3,800 means that the ending inventory for 2021 was lower than it should have been. This understatement would have reduced the cost of goods sold (COGS) for 2021, resulting in a higher pretax income for that year.

To calculate the correct pretax income for 2021, we need to add the understatement ($3,800) to the reported pretax income ($28,600):

Correct Pretax Income for 2021 = Reported Pretax Income + Ending Inventory Understatement
Correct Pretax Income for 2021 = $28,600 + $3,800
Correct Pretax Income for 2021 = $32,400

For 2022, there is no mention of an inventory understatement. Therefore, the reported pretax income of $33,700 is also the correct pretax income for that year.