### Financial Reporting Exercise**Scenario Description:**Headlands Industries reports a net income of $86,320 in 2017. However, it was discovered that the ending inventory was understated by $6,990. This exercise will help you understand how to adjust the financial statements for this type of error.---**Questions:**1. **What is the correct net income for 2017?** - Calculate the correct net income by adjusting for the inventory error. - **Correct Net Income:** - $ [ Input box ] - **List of Accounts:** - [ Button: "List of Accounts" ]2. **What effect, if any, will this error have on total assets as reported in the balance sheet at December 31, 2017?** - Determine the impact on total assets due to the inventory understatement. - **Balance Sheet Adjustment:** - [ Dropdown: Increase/Decrease ] in the balance sheet will be [ Dropdown: Increased/Decreased ] by the amount that ending inventory is understated, $ [ Input box ]. - **List of Accounts:** - [ Button: "List of Accounts" ]---### Explanation:- **Net Income Adjustment:** The understatement of inventory affects the cost of goods sold and, consequently, the net income. Correcting this will increase the reported net income.- **Balance Sheet Adjustment:** Inventory is an asset, and understating it leads to an understatement of total assets. Correcting this error will result in an increase in reported assets.### Key Concepts:- **Inventory Understatement:** Refers to inventory being valued less than its actual amount, affecting cost calculations and net income.- **Impact on Financial Statements:** Errors in inventory reporting affect both the income statement and the balance sheet, necessitating adjustments for accurate financial reporting.Utilize the provided inputs to practice adjusting financial statements for errors in inventory reporting.

Cost of Goods sold: To derive the cost of Goods sold add cost of goods purchased and deduct the…

Headlands Industries reports net income of $86,320 in 2017. However, ending inventory was understated by $6,990. What is the correct net income for 2017? The correct net income 2$ List of Accounts What effect, if any, will this error have on total assets as reported in the balance sheet at December 31, 2017? in the balance sheet will be by the amount that ending inventory is 2$

Headlands Industries reports net income of $86,320 in 2017. However, ending inventory was understated by $6,990. What is the correct net income for 2017? The correct net income 2$ List of Accounts What effect, if any, will this error have on total assets as reported in the balance sheet at December 31, 2017? in the balance sheet will be by the amount that ending inventory is 2$

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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