At the end of 2014 (right-hand column above), the inventory was understated by $40,000, but the error
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Question:
At the end of 2014 (right-hand column above), the inventory was understated by $40,000, but the error was not discovered until after the accounts had been closed and financial statements prepared at the end of 2015. The balance sheets for the two years showed owner s equity of $500,000 at the end of 2014 and $580,000 at the end of 2015. (Branson is organized as a sole proprietorship and does not incur income taxes expense.)
a. Compute the corrected net income figures for 2014 and 2015.
b. Compute the gross profit amounts and the gross profit percentages for each year on the basis of corrected data.
c. What correction, if any, should be made in the amounts of the company s owner s equity at the end of 2014 and at the end of 2015?
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