Question

Oriole Inc. reported total assets of $2407000 and net income of $324000 for the current year. Oriole determined that inventory was overstated by $25500 at the beginning of the year (this was not corrected). Ignoring income taxes, what is the corrected amount for total assets and net income for the year?

Answer 1

Answer:

Total Asset $2,381,500

Net income $298,500

Explanation:

Overstated Inventory Leads to the overstatement of Total Assets value and Net Income. Ending Inventory Value is added in the total asset balance, overstatement in ending inventory causes overstatement in total assets.

The Ending Inventory is also used in the calculation of Cost of Goods sold. Overstated Inventory will cause understatement in Cost of Goods sold and overstatement in Net Income.

To rectify its effect we will deduct the overstated value of Inventory from Total Asset balance and Net Income value.

Total Asset = $2,407,000 - $25,500 = $2,381,500

Net Income = $324,000 - $25,500 = $298,500