The correct 2014 net income for Magness Company, after error corrections, was $56,000. Two errors were found after net income was first reported. The January 1, 2014 inventory and the December 31, 2014, inventory were overstated by $5,000 and $10,000, respectively. The net income that must have been originally reported was
A) $41,000
B) $66,000
C) $71,000
D) $61,000

Question

Quizplus · Accepted Answer

The January 1 inventory overstatement would have decreased cost of goods sold by $5,000, increasing net income. The December 31 inventory overstatement would have increased cost of goods sold by $10,000, decreasing net income. Thus, the original net income was $56,000 + $5,000 + $10,000 = $71,000.

The Correct 2014 Net Income for Magness Company, After Error