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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Inventory Errors

McLelland Inc. reported net income of $175,000 for 2019 and $210,000 for 2020. Early in 2020, McLelland discovers that the December 31, 2019 ending inventory was overstated by $20,000. For simplicity, ignore taxes.

Required:

1. What is the correct net income for 2019? For 2020?

2. Assuming the error was not corrected, what is the effect on the balance sheet at December 31, 2019? At December 31, 2020?

To determine

Concept introduction:

Requirement 1:

To calculate:

The correct amount of net income for the year 2019 and 2020.

Explanation

The correct amount of net income for the year 2019 and 2020 is calculated as follows:

Mclelland Inc.
Year 2019 Year 2020
To determine

Concept introduction:

Requirement 2:

To indicate:

The effect of error on the balance sheet for the year 2019 and 2020.

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