The records of Shen Inc. show the following data for the years ended March 31: A

Question

The records of Shen Inc. show the following data for the years ended March 31:

After the company’s March 31, 2018, year end, the accountant discovers two errors:

(a)

For each of the three years, prepare both incorrect and corrected income statements through to income before income tax.

INCORRECT

  Year Ended July 31Month Ended July 31a July 31

CORRECT

2018 2017 2016 Income statement:     Sales $ 336,100 $ 317,000 $ 296,900     Cost of goods sold 233,000 223,000 211,400     Operating expenses 68,000 64,300 64,300 Statement of financial position:     Inventory 39,600 39,600 24,000

Explanation / Answer

Solution a:

Note: Goods in transit on March 30, 2017 will not have any impact on COGS as transaction was not recorded. If transactin is recorded then purhcase and ending inventroy will increase with same amount, therefore it will not impact COGS. The impact of this transaction will have on ending inventory to be reported in balance sheet.

Shen Inc. Incorrect Income Statement - For year 2018, 2017 and 2016 Particulars 2018 2017 2016 Sales $336,100.00 $317,000.00 $296,900.00 Cost of goods sold $233,000.00 $223,000.00 $211,400.00 Gross Profit $103,100.00 $94,000.00 $85,500.00 Operating Expenses $68,000.00 $64,300.00 $64,300.00 Income before income tax $35,100.00 $29,700.00 $21,200.00

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