Styles Error Analysis and Correcting Entry The reported net incomes for the firs

Question

Styles Error Analysis and Correcting Entry The reported net incomes for the first 2 years of US Books Corp were as follows: 2016, $268,000; and 2017, $412,000. Early in 2018, the following errors were discovered. 1.Depreciation of equipment for 2016 was understated $68,500. 2.Depreciation of equipment for 2017 was overstated $39,000. 3.December 31, 2016, inventory was overstated $12,000. 4.December 31, 2017, inventory was understated $73,600. Ignore income tax considerations. Net income for 2016 was a. understated by $60,000. b. overstated by $84,000. c. understated by$80,500. d. none of the above

Explanation / Answer

Only the following two transactions will have impact on 2016 profits

1)

Depreciation of equipment for 2016 was understated by $68,500 – Due to this, expenses for 2016 were also understated by $68,500 and so, corresponding profit was overstated by $68,500

2)

December 31, 2016 inventory was overstated $12,000 – Due to this, the profits for 2016 increased by $12,000 and so the profits were overstated by $12,000

So, as per above discussion, the above errors resulted in overstatement of profits of 2016 by $ (68,500 + 12,000)

= $80,500

So, option d is the correct option as none of the 3 other options have this answer

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