The net income per books of Russell Industries Limited was determined without any knowledge of the following errors. The 2015 year was Russell?s first year in business. No dividends have been declared or paid.

Instructions

a. Prepare a work sheet to show the adjusted net income figure for each of the six years after taking the inventory corrections into account.

b. Prepare a schedule that shows both the original retained earnings balance reported at the end of each year and the corrected amount.

c. Consider the trends in the increase in income from 2019 to 2020 as originally reported and as revised after the corrections. Would you suspect that the income is being manipulated by adjusting the ending balance in the inventory account?

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Net Income per Books $50,000 52,000 Error in Ending Inventory Overstated Year 2015 2016 2017 2018 $ 5,000 Overstated Understated No error Understated Overstated 11,000 54,000 2,000 10,000 58,000 60,000 2019 2020