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The Jackson Company incorrectly omitted $100,000 of merchandise from its 20X1 ending inventory. In addition, a merchandise purchase of $40,000 was incorrectly recorded as a $4,000 debit to the purchases account. As a result of these errors, 20X1 before-tax income is:___________.1. Overstated by $136,0002. Understated by $136,0003. Overstated by $640004. Undersated by $64000

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Answer:

Option "4" is the correct answer to the following statement.

Explanation:

Step 1: Company omitted $100,000 from Stock account, it will Increase Cost of goods sold by $100,000

and also Profit by $100,000

Step 2: Purchase account debited by $4000 Would decrease the Cost of goods sold by ($40,000 - $4,000) $36,000 and decrease Profit by the same amount.

Total understate income = $100,000 - $36,000

= $64,000

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