The correct 2010 net income for Margie Company, after error corrections, was $56, 000.Two errors were found after net income was first reported.The January 1, 2010 inventory and the December 31, 2010, inventory were overstated by $4, 000 and $9, 000, respectively.The net income that must have been originally reported was
A)$43, 000
B)$51, 000
C)$61, 000
D)$69, 000

Question

Quizplus · Accepted Answer

The original net income was understated due to the inventory errors. Correcting the January 1 inventory overstatement by $4,000 would increase the cost of goods sold, decreasing net income. Correcting the December 31 inventory overstatement by $9,000 would decrease the cost of goods sold, increasing net income. The net effect is a $5,000 decrease in cost of goods sold ($9,000 - $4,000), which would have made the originally reported net income $5,000 higher than the corrected $56,000, making it $61,000.

The Correct 2010 Net Income for Margie Company, After Error