Answer:
The correct pretax income in 2018 is $27000.
The correct pretax income in 2019 is $28000.
Explanation:
In 2018, the reported pretax income was $25000, however, ending inventory was understated by $2000.
The Cost of goods sold was overstated making net income understated.
∴ The correct pretax income for 2018 should be = [tex]\$ 25000+\$ 2000= \$ 27000[/tex].
In 2019, the reported pretax income was $30000, which means it is overstated by $2,000.
∴ The correct pretax income for 2019 should be = [tex]\$ 30000-\$ 2000= \$ 28000[/tex]
∵ The understated ending inventory would become beginning inventory which would cause the cost of goods sold to be understated and net income was overstated.
