1) Janes Company incorrectly omitted $50,000 of merchandise from its 2010 ending inventory. In addition, a...
1) Janes Company incorrectly omitted $50,000 of merchandise from its 2010 ending inventory. In addition, a merchandise purchase of $20,000 was incorrectly recorded as $2,000 in the purchases account. As a result of these errors, 2010 income (before taxes) is:
a) overstated by $32,000.
b) understated by $32,000.
c) overstated by $68,000
d) understated by $68,000.
Homework Answers
b) understated by $32,000.
By itself, the $50,000 omitted inventory would cause cost of goods sold to be overstated (and income understated) by $50,000. By itself, the misrecorded purchase would cause cost of goods sold to be understated (and income overstated) by $18,000. The net effect is to understate income by $32,000.
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