During a Year-End Evaluation of the Financial Records of the Matthew

question 23

Multiple Choice

During a year-end evaluation of the financial records of the Matthew Company for the year ended December 31, 2014, the following was discovered:
Inventory on January 1, 2014, was understated by $6,000.
Inventory on December 31, 2014, was understated by $18,000.
Rent of $20,000 collected in advance on December 29, 2014, was included in income for 2014.
A probable, reasonably estimated contingent liability of $30,000 was not recorded as of December 31, 2014.
Net income for 2014 (before any of the above items) was $250,000. The corrected net income, ignoring income taxes, for 2014 should be

• A) $300,000
• B) $208,000
• C) $212,000
• D) $218,000

---

Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Molding Machine

A machine used in manufacturing to shape liquid or pliable material using a rigid frame called a mold or matrix.

Straight-line Rate

A method of calculating depreciation by evenly allocating the cost of an asset over its useful life.

Double Declining-balance

An accelerated method of depreciation where the book value of an asset is reduced at double the rate of its straight-line depreciation.