Prepare corrected income statements

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Reference no: EM13527392

 

Correcting an inventory error-two years

Great Foods Grocery reported the following comparative income statement for the years ended June 30, 2012 and 2011:

GREAT FOODS GROCERY Income Statements Years Ended June 30, 2012 and 2011


2012

2011

Sales revenue


$ 139,000


$ 120,000

Cost of goods sold:





Beginning inventory

$13,000


$12,000


Net purchases

76,000


70,000


Cost of goods available

$89,000


$82,000


Ending inventory

(17,000)


(13,000)


Cost of goods sold


72,000


69,000

Gross profit


$ 67,000


$ 51,000

Operating expenses


23,000


18,000

Net income


$ 44,000


$ 33,000

During 2012, Great Foods discovered that ending 2011 inventory was overstated by $4,500.

Requirements

1. Prepare corrected income statements for the two 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.

Reference no: EM13527392

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