Question

At the beginning of Year 1, the company's inventory level was stated correctly. At the end of Year 1, inventory was overstated by $2,000. At the end of Year 2, inventory was understated by $450. Reported net income was $3,000 in Year 1 and $3,000 in Year 2. The correct amount of net income in Year 1 and in Year 2 is:

Answer 1

Answer:

$5,000 ; $2,550

Explanation:

The computation is shown below:

For net income in year 1

= Reported net income + overstated inventory amount

= $3,000 + $2,000

= $5,000

For net income in year 2

= Reported net income - understated inventory amount

= $3,000 - $450

= $2,550

Therefore, the net income in Year 1 and in Year 2 is $5,000 and $2,550 respectively.