Question

Following is the income statement of Jericho Co. for its most recent fiscal year.
Sales........................................................ $267,000
Cost of Goods Sold................................ (93,000)
Gross Profit............................................. $174,000
Operating Expenses................................ (30,000)
Operating Income.................................... $144,000
Income Taxes Expense (30%)................. (43,200)
Net Income......................................... $100,800
Shortly after the company’s financial statements were issued, Jericho’s accountant discovered that the company’s ending inventory had been inadvertently over stated by $12,000. This error stemmed from an error on the part of the accountant, who double counted some items of ending inventory. The inventory balance was shown at $39,000, whereas the true inventory value was $27,000.
Required:
(a) Prepare a corrected income statement for Jericho Co.
(b) Suppose Jericho’s owner told her accountant to ignore the inventory error, saying, ‘‘why bother? The financial statements have already been issued, and besides it was an honest mistake.’’ Evaluate the owner’s decision. Has she behaved unethically? Why or why not? What parties may be affected by the owner’s decision? Explain.


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  • CreatedMarch 27, 2015
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