Presented below are the comparative income statements for Watson Industries for the years 2023 and 2024, prior to the information provided in the bulleted list below. Assume no taxes exist.

2024 2023

Sales $660,000 $600,000

Cost of Sales 430,000 390,000

Gross Profit 230,000 210,000

Expenses 180,000 170,000

Net Income $ 50,000 $ 40,000

Retained Earnings, Jan. 1 $117,000 $ 89,000

Net Income 50,000 40,000

Dividends (15,000) (12,000)

Retained Earnings, Dec. 31 $152,000 $117,000

• The company discovered that assets costing $150,000 purchased at the beginning of 2023 had been depreciated straight-line as though their useful life was five years, when it was known the life was actually three years.

• The company discovered that the ending inventory for 2023 was understated by $13,000.
• Prepaid expenses of $4,000 were omitted in 2023.

In the revised financial statements, the 2023 Net Income would be:

a.

$57,000

b.

$3,000

c.

$37,000

d.

$23,000

e.

$49,000