Scribd
Upload
916 views2 pages

Esquire Income Statement Adjustments

The company's 2021 ending inventory was overstated by $30,000 due to incorrectly including goods sold and excluding goods received. The 2022 ending inventory was understated by $140,000 because goods received were not included. The corrected 2021 net income is $970,000 and 2022 net income is $1,370,000. If no corrections are made, the total income before taxes over the two years would not change.

Uploaded by

Dante Nas Jocom
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
916 views2 pages

Esquire Income Statement Adjustments

The company's 2021 ending inventory was overstated by $30,000 due to incorrectly including goods sold and excluding goods received. The 2022 ending inventory was understated by $140,000 because goods received were not included. The corrected 2021 net income is $970,000 and 2022 net income is $1,370,000. If no corrections are made, the total income before taxes over the two years would not change.

Uploaded by

Dante Nas Jocom
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Inventory and Corrected Net Income Problems

Problem 1: S Company reported income before taxes of 1,000,000 for 2021 and 1,200,000 for 2022.

The
company takes its annual physical count of inventory every December 31. Your audit revealed the
following information:
 The price used for 4,000 units included in the 2021 ending inventory was 129. The correct cost
was 119.
No entry

 Goods costing 70,000 was received from a vendor on January 5, 2022. The shipment was made
on December 26, 2021 under FOB shipping point term. The purchase was recorded in 2021 but
the shipment was not included in the 2021 ending inventory.
Inventory 70,000
Cost of Goods Sold 70,000

Cost of Goods Sold 70,000


Retained Earnings 70,000

 Merchandise costing 100,000 was sold to customer on December 29, 2021. The company was
asked by the customer to keep the merchandise until January 3, 2022, when the customer would
come and pick it up. Although the sale was properly recorded in 2021, the merchandise was
included in the ending inventory.

Cost of Goods Sold 100,000


Inventory 100,000

Retained Earnings 100,000


Cost of Goods sold 100,000

 A supplier sold merchandise valued at 140,000 to the company. The merchandise was shipped
FOB shipping point on December 29, 2022 and was received by the company on December 31,
2022. The purchase was recorded in 2022 and the merchandise was not included in the 2022
ending inventory.

Inventory 140,000
Cost of Goods Sold 140,000

A. The December 31, 2021 inventory is over or understated by?

Transaction 2 -70,000
Transaction 3 100,000
Overstated 30,000

B. The December 31, 2022 inventory is over or understated by?


Transaction 4 -140,000

C. The corrected net income for 2021 is?


Unadjusted 1,000,000
70,000
Transation 1 -100,000
970,000
D. The corrected net income for 2022 is?

Corrected 1,200,000
` -70,000
100,000
140,000
1,370,000
E. If no correcting entries are made for 2 years combined, by what amount did the total income
before taxes change?
0 since it is a counter balance

Problem 1: S Company reported income before taxes of 1,000,000 for 2021 and 1,200,000 for 2022. The company takes its annual
Unadjusted 1,000,000 70,000 Transation 1 -100,000 970,000 D. The corrected net income for 2022 is? Corrected 1,200,000 ` -70,

You might also like