Question

The net income per books of Margaret Moore Company was determined without knowledge of the errors indicated below.

Year		Net Income per Books				Error in Ending Inventory
2015			$45,600			Overstated		$ 2,990
2016			47,800			Overstated		8,370
2017			49,710			Understated		11,200
2018			51,890			No error
2019			53,690			Understated		1,800
2020			55,590			Overstated		7,980

Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.

Errors in Inventories
Year		Net Income Per Books		Overstatement Jan. 1		Understatement Jan. 1		Overstatement Dec. 31		Understatement Dec. 31		Corrected Net Income
2015		$45,600		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
2016		47,800		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
2017		49,710		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
2018		51,890		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
2019		53,690		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
2020		55,590		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
		$enter a total amount

Answer 1

Year	Net Income	Overstatement	Understatement	Overstatement	Understatement	Corrected Net Income
	Per Books	Jan. 1	Jan. 1	Dec. 31	Dec. 31
2015	45,600			-2990		42,610
2016	47,800	2990		-8370		42,420
2017	49,710	8370			11200	69,280
2018	51,890		-11200			40,690
2019	53,690				1800	55,490
2020	55,590		-1800	-7980		45,810
	3,04,280					2,96,300

When the Ending Inventory is overstated, it leads to overstatement of income and it is reduced from income.

the same inventory is the opening inventory of next year and COGS will be overstated hence it is added to Income

For Eg: In the year 2015 inventory is overstated by $2990 so the income is oversated, hence it is reduced to arrive at correct income. Same inventory becomes opening inventory of next year and it will inflate the Cost of Goods Sold, So it will be reduced to arrive at correct income.

If you find this answer usefull please upvote.

For any further clarification comment

Good Day!!