The Following Inventory Valuation Errors Were Discovered by Knox Corporation's $\$ 17,000$

question 52

Multiple Choice

The following inventory valuation errors were discovered by Knox Corporation's new controller just after the annual financial statements were published at the end of Year 3.
The Year 3 ending inventory was understated by $\$ 17,000$ .
The Year 2 ending inventory was understated by $\$ 61,000$ .
The Year 1 ending inventory was overstated by $\$ 23,000$ .
The net income for Knox in each of these years was:
$\text { Net income } \quad \frac { \text { Year } 3 } { \$ 168,000 } \quad \frac { \text { Year } 2 } { \$ 254,000 } \quad \frac { \text { Year 1 } } { \$ 138,000 }$
Assuming there were no income taxes, what was the adjusted net income in each year?
$\begin{array}{rrrr}\text { Year 3} & \text { Year } 2 & \text { Year } 1 \\A.\$ 212,000 & \$ 170,000 & \$ 161,000 \\B.\$ 124,000 & \$ 338,000 & \$ 115,000 \\C. \$ 90,000 & \$ 338,000 & \$ 161,000 \\D. \$ 124,000 & \$ 170,000 & \$ 115,000\end{array}$

• A) Option A
• B) Option B
• C) Option C
• D) Option D

Understand how to calculate direct materials cost.

Calculate adjusted cost of goods sold.

Prepare T-accounts for various cost elements and transactions.

Understand the treatment and effect of underapplied or overapplied overhead on cost of goods sold.

---

Definitions:

Imaginatively

In a manner that shows creativity or inventiveness, especially in solving problems or creating artistic works.

Sufficient

Enough to meet the needs of a situation or a proposed end.

Practical Intelligence

Refers to the ability to solve everyday problems by utilizing knowledge gained from experience in contrast to academic or book knowledge.

Corporate Manager

An individual who is in charge of overseeing the operations and making decisions within a company or organization.