Dows Company Prepared Income Statements That Reflected Pretax Income of $21,000

question 119

Short Answer

Dows Company prepared income statements that reflected pretax income of $21,000 for 2010 and $30,000 for 2011.An audit has determined that there were two errors in the inventory amounts as follows:
$$\begin{array} { l c c } & \begin{array} { c } \text { Amount } \\\text { Reported }\end{array} & \underline { \text { Correct Amount } } \\\text { Ending inventory, 2010 } & \$ 15,000 & \$ 14,000 \\\text { Ending inventory, 2011 } & 18,000 & 16,000\end{array}$$ Determine the correct pretax income amount for each year (show computations assuming the errors were not corrected)

---

Definitions:

Authorized Shares

The maximum number of shares a corporation is legally allowed to issue, as stipulated in its articles of incorporation.

Treasury Stock

Shares that were issued and later reacquired by the issuing company, reducing the amount of outstanding stock on the open market.

Cash Dividend

A share of a company's profits paid out to its shareholders in cash.

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout, increasing the total number of shares owned by shareholders.