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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Errors During the course of your examination of the financial statements of Burnett Co., a new client, for the year ended December 31, 2019, you discover the following:

  • Inventory at January 1, 2019, was understated by $6,000.
  • Inventory at December 31, 2019, was overstated by $5,000.

During 2019, the company received a $1,000 cash advance from a customer for merchandise to be manufactured and shipped during 2020. It had credited the $1,000 to sales revenue. The company’s gross profit on sales is 50%. Net income reported on the 2019 income statement (before reflecting any adjustments for the above items) is $20,000.

Required:

Next Level What is the correct net income for 2019?

To determine

Calculate the correct net income for 2019.

Explanation

Inventory errors: It refers to the errors that result in overstatement or understatement of ending inventory caused due to wrong physical inventory count, or wrong price fixation of the inventory quantities. It also includes overstatement or understatement of purchases caused to wrong inventory cut-off. These errors are rectified by reversing the original erroneous entry and recording the correct entry.

Calculate the correct net income for 2019.

Correct Net Income

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