Q 24E-2
Question
Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:
| NATURE FOODS GROCERY | ||
| Income Statements | ||
| Years Ended June 30, 2019 and 2018 | ||
| 2019 | 2018 |
Net Sales Revenue | \( 134,000 | \) 119,000 |
Cost of Goods Sold: |
|
|
Beginning Merchandise Inventory | \(17,000 | \)14,000 |
Net Cost of Purchases | 78,000 | 67,000 |
Cost of Goods Available for Sale | 95,000 | 81,000 |
Less: Ending Merchandise Inventory | 18,000 | 17,000 |
Cost of Goods Sold | 77,000 | 64,000 |
Gross Profit | 57,000 | 55,000 |
Operating Expenses | 26,000 | 21,000 |
Net Income | \( 31,000 | \) 34,000 |
During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.
Requirements
2. State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.
Step-by-Step Solution
VerifiedOverstated amount before correction for 2018: $5,500
Understated amount before correction for 2019: $5,500
Net income for 2018 before correction is $34,000.
But after the correction, the net income amounts to $28,500.
So the net income before the correction was overstated.
Net income for 2019 before correction is $31,000.
But after the correction, the net income amounts to $36,500.
So the net income before the correction was understated.