Inventory...?

Question

Company A has 100000 in its inventory on the balance sheet. However the inventory is not right....it was understated by 10000. the company was in business for five years....and the balance sheet shows the inventory for its fifth year....what is the right amount of inventory on the balance sheet for the fifth year?

thanks :)

Answer 1

If you can't allocate the error in each year, then lump all the understatement into the 5th year. If inventory was understated, then update the inventory in the balance sheet by increasing it to $110,000 and increase the income by $10,000 in year 5.