Question

Insigne Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $31,700, and its ending inventory on December 31 was overstated by $16,300. In addition, a purchase of merchandise costing $74,000 was incorrectly recorded as a $7,400 purchase. None of these errors were discovered until the next year. As a result, taxable income for this year was:

Answer 1

Answer:

Taxable income understated by $82,000

Explanation:

Computation:

Particular                                                     Amount

Incorrectly recorded purchase                   $7,400

Add:  Ending inventory overstated            $16,300

                                                                    $23,700

Less: Opening inventory overstated         $31,700

Less: Purchase of inventory                       $74,000

Taxable income understated                   $82,000