Mertens Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $31,700, and its ending inventory on December 31 was understated by $16,300. In addition, a purchase of merchandise costing $20,700 was incorrectly recorded as a $2,070 purchase. None of these errors were discovered until the next year. As a result, taxable income for this year was:

Question

Business

Karsyn Hurley

25 August, 12:10

Mertens Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $31,700, and its ending inventory on December 31 was understated by $16,300. In addition, a purchase of merchandise costing $20,700 was incorrectly recorded as a $2,070 purchase. None of these errors were discovered until the next year. As a result, taxable income for this year was:

+2

Answers (1)

Know the Answer?

Travis Harris · Answer 1

The answer is, The taxable income for this year was Understated by $3,230

Explanation:

Solution

Particulars: Under statement of beginning inventory January 1.

Amount: 31700

The Effect on taxable income : Overstated

Particulars: Under statement of Ending inventory December 31

Amount: - 16300

The Effect on taxable income: Understated

Particulars: Purchases of Incorrect record of ($20700-$2070)

Amount: - 18630

The Effect on taxable income: Understated

Particulars:Net Effect on taxable income for above transactions

Amount: - 3230

The Effect on taxable income: Understated

Therefore, from the above information from the question stated, the taxable income for this year was Understated by $ 3,230