Question

Given the following data:

Overstated Understated Sales Returns Ending Inventory Freight Out $4 $15

Net Income is:

Select one:

a. Overstated $24

b. Understated $6

c. Overstated $16

d. Understated $15

e. Understated $14

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Answer #1

Solution:

Understated Sales returns = Income Overstated by $5

Overstated Ending Inventory = Income overstated by $4

Overstated Freight out = Income Understated by $15

Net effect on Net Income = $5 + $4 - $15 = - $6

Hence, Net income is understated by $6.

Hence option "b" is correct

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