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3 years ago

The following inventory valuation errors have been discovered for Knox Corporation:

Business

1 answer:

Whitepunk [10]3 years ago

7 0

Answer:

Income +/- inventory adjustment

2015: 138,000 - 23,000 = 115,000

2016: 254,000 + 61,000 = 315,000

2017: 168,000 + 17,000 = 185,000

Explanation:

Inventory Identity:

Beginning + Purchases = Ending + COGS

As the mistake is on the right side it compensates by the other component which is COGS

When the inventory is overstated this means COGS is understated.

We didn't record the cost of good sold thefore our gross profit is higher making the net income higher.

When the inventory is understated this means COGS is overstated.

We record more cost of goods sold thefore our gross profit is lower making the net income fewer as well.

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