Question

Rouge Company’s $250,000 net income for the quarter ended September 30 included the following after-tax items:A $20,000 cumulative effect loss resulting from a change in inventory valuation method made on September 1.$0 of the $60,000 annual property taxes paid on February 1.For the quarter ended September 30, the amount of net income that Rouge should report is:_______.a. $235,000.b. $250,000.c. $255,000.d. $270,000.

Answer 1

c. $255,000

Step-by-step explanation:

Rouge should report the following income for this quarter = $250,000 (net income) + $20,000 (cumulative effect loss) - $15,000 (25% of annual property taxes) = $255,000

Cumulative effects on inventory valuation occur when overstate or understate your inventory levels, which directly affects cost of goods sold and overall profits.