prepare corrected income statements for the three years 559739

Correcting inventory errors over a three year period

Evergreen Carpets’ books show the following data. In early 2013, auditors found that the ending inventory for 2010 was understated by $6,000 and that the ending inventory for 2012 was overstated by $7,000. The ending inventory at December 31, 2011, was correct.

2012

2011

2010

Net sales revenue

$210,000

$ 27,000

$ 41,000

Cost of goods sold:

Beginning inventory

$ 20,000

108,000

98,000

Net purchases

140,000

$135,000

$139,000

Cost of goods available

$160,000

(20,000)

(27,000)

Ending inventory

(29,000)

$162,000

$169,000

Cost of goods sold

131,000

115,000

112,000

Gross profit

$ 79,000

$ 47,000

$ 57,000

Operating expenses

53,000

18,000

24,000

Net income

$ 26,000

$ 29,000

$ 33,000

Requirements

1. Prepare corrected income statements for the three years.

2. State whether each year’s net income—before your corrections—is understated or overstated and indicate the amount of the understatement or overstatement.

Submit a Comment