Question

Question 19 1 pts Shetland Company reported net income on the year-end financial statements of $189,091. However, errors in inventory were discovered after the reports were issued. If inventory was understated by $16,026, how much net income did the company actually earn?

Answer 1

The actual net income Shetland Company earned was $205,117 after correcting the $16,026 inventory understatement by adding it to the initially reported net income of $189,091.

Step-by-step explanation:

The student asked how much net income did Shetland Company actually earn if inventory was understated by $16,026. When inventory is understated by $16,026, this would mean that the cost of goods sold (COGS) was overstated by that same amount, because inventory not accounted for could not be subtracted from the revenue. Consequently, this company's net income was understated by $16,026. To correct this, you add the understated amount to the reported net income. Therefore, the actual net income is $189,091 (reported net income) + $16,026 (inventory understatement) = $205,117.