36PGB_3
Question
Question: Antique Carpets’s books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.
| 2019 | 2018 | 2017 |
Net Sales Revenue | \( 212,000 | \) 161,000 | \( 170,000 |
Cost of Goods Sold: |
|
|
|
Beginning Merchandise Inventory | \)22,000 | \(28,000 | \)41,000 |
Net cost of purchase | 131,000 | 100,000 | 86,000 |
Cost of goods available for sale | 153,000 | 128,000 | 127,000 |
Less: Ending Merchandise Inventory | 34,000 | 22,000 | 28,000 |
Cost of goods sold | 119,000 | 106,000 | 99,000 |
Gross Profit | 93,000 | 55,000 | 71,000 |
Operating Expenses | 63,000 | 28,000 | 39,000 |
Net Income | \( 30,000 | \) 27,000 | $ 32,000 |
Requirements
1. Prepare corrected income statements for the three years.
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)
Step-by-Step Solution
Verified2019 2018 2017
Inventory Turnover--------------- 5.45 3.93 2.36
Days’ sales in inventory-------- 67 92.87 154.66
| 2019 | 2018 | 2017 |
Net Sales Revenue | $ 212,000 | $ 161,000 | $ 170,000 |
Cost of Goods Sold: |
|
|
|
Beginning Merchandise Inventory | $22,000 | $36,000 | $41,000 |
Net cost of purchase | 131,000 | 100,000 | 86,000 |
Cost of goods available for sale | 153,000 | 136,000 | 127,000 |
Less: Ending Merchandise Inventory | 25,000 | 22,000 | 36,000 |
Cost of goods sold | 128,000 | 114,000 | 91,000 |
Gross Profit | 84,000 | 47,000 | 79,000 |
Operating Expenses | 63,000 | 28,000 | 39,000 |
Net Income | $ 21,000 | $ 19,000 | $ 40,000 |