Question

The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated.

Net Income Error in Ending

Year per Books Inventory

2012 \(50,000 Overstated \) 3,000

2013 52,000 Overstated 9,000

2014 54,000 Understated 11,000

2015 56,000 No error

2016 58,000 Understated 2,000

2017 60,000 Overstated 8,000

Instructions

Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventoryerrors.

Short answer

The adjusted net income in the given year order are $47,000, $46,000, $74,000, $45,000, $60,000, and $50,000, respectively.

Step-by-step solution

Ending inventory effect on net income

Ending inventory has a positive relationship with the net income. Thus overstated inventory would have overstated net income, and understated inventory would have understated net income.

On the contrary, the opening inventory has negative relation with net income.

Adjusted net income for each of the 6 years

Year	Net Income as per book	Error in ending inventory	Adjusted net income
2012	$50,000	Overstated by $3,000	$50,000-$3,000 = $47,000
2013	$52,000	Overstated by $9,000	$52,000-$9,000+$3,000 = $46,000
2014	$54,000	Understated by $11,000	$54,000 +$11,000 + $9,000 = $74,000
2015	$56,000	No error	$56,000 - $11,000 = $45,000
2016	$58,000	Understated by $2,000	$58,000+$2,000 = $60,000
2017	$60,000	Overstated by $8,000	$60,000-$8,000-$2,000 = $50,000

Note: Net income has been adjusted for both beginning and ending inventory.