Vaughn Inc. reported total assets of $2406000 and net income of $332000 for the current year. Vaughn determined that inventory was overstated by $25500 at the beginning of the year (this was not corrected). Ignoring income taxes, what is the corrected amount for total assets and net income for the year?

$2,380,500  and $357,500

Explanation:

The movement in the balance of inventory at the start and end of a period is as a result of sales and purchases. While sales reduces the balance in inventory, purchases increases the balance. This may be expressed mathematically as

Opening balance + purchases - cost of goods sold = closing balance

As such, when inventory is overstated at the start of the year, the ending inventory would also be overstated by the same amount, the cost of goods sold would be overstated and net income understated.

Correct amount of asset

= $2406000 -  $25500

= $2,380,500

net income for the year

= $332000 + $25500

= $357,500