The correct 2016 net income for Magness Company, after error corrections, was $56,000. Two errors were found after net income was first reported. The January 1, 2016 inventory and the December 31, 2016, inventory were overstated by $5,000 and $10,000, respectively. What is the amount of the net income that must have been originally reported?
A) $41,000
B) $66,000
C) $71,000
D) $61,000

Question

Quizplus · Accepted Answer

The original net income was overstated due to inventory errors. The beginning inventory was overstated by $5,000, which would have decreased COGS and increased net income. The ending inventory was overstated by $10,000, which would have increased COGS and decreased net income. The net effect is a $5,000 overstatement of net income ($10,000 - $5,000). Therefore, the originally reported net income must have been $56,000 + $5,000 = $61,000.

The Correct 2016 Net Income for Magness Company, After Error