Problem
L'Anse Co. is a small start-up company in its second year of business that manufactures weather resistent covers for outdoor hot tubs. Janine Jones, the CFO of the company, is preparing the financial statements for the calendar year (CY) 2017. The accounting records are as follows: Raw materials inventory was $81,500 as of December 31, 2016 and $52,180 as of December 31, 2017. Work-in-process inventory was $206,000 as of December 31, 2016 and $287,000 as of December 31, 2017. Finished goods inventory was $187,000 as of December 31, 2016 and $65,000 as of December 31, 2017.
Analyze the data for CY 2017 and answer the questions that follow:
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Factory maintenance expense
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$50,400
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Plant manager salary
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$50,000
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Maintenance on office building
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$37,500
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Advertising expense
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$75,000
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Sales revenue
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$1,232,000
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Direct labor wages expense
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$230,000
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Raw materials purchases
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$540,000
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Rent on office building
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$148,300
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Supplies for factory
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$21,000
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What if there was an error in counting raw materials ending inventory and the correct amount as of December 31, 2017 should have been $0. If the error is not corrected, what is the amount by which net operating income is over- or under-stated? Enter an overstatement as a positive number and an understatement as a negative number.