2017 2016 2015 s 215,000 $ 164.000 169,000 Net Sales Revenue Cost of Goods Sold:
ID: 2575416 • Letter: 2
Question
2017 2016 2015 s 215,000 $ 164.000 169,000 Net Sales Revenue Cost of Goods Sold: Beginning Merchandise Inventory S 23,000 Net Cost of Purchases Cost of Goods Available for Sale Less: Ending Merchandise Inventory000 Cost of Goods Sold 134,000 157,000 35,000 S 27,000 95,000 122,000 23,000 S46,000 81,000 127,000 27,000 Gross Profit Operating Expenses Net Income 122,000 93,000 69,000 $ 24,000 99,000 65,000 38,000 S 27,000 100,000 69,000 37,000 32,000 Requirements 1. Prepare corrected income statements for the three years 2. State whether each year's net income-before your corrections-i understated or overstated, and indicate the amount of the understatement or overstatement Compute the inventory turnover and days' sales in inventory using the corrected income statement for the three years. (Round all numbers to two decimals) 3. Print DoneExplanation / Answer
1. the above income statement is correct.
there is no adjustment given apart from the income statement.
in the second picture, there seems to be an adjustment which is unclear to read.
for inventory related adjustments, when closing inventory is more than original then income is overstated in the year in which closing inventory is given. an equal adjustment should be made in next year opening inventory as income will understated due to more inventory cost.
as a general rule, treat closing inventory as an income and opening inventory as an expense to determine understatement and overstatement of income.
3. Inventory turnover ratio = cost of goods sold / Average Inventory
where Average Inventory is average of opening inventory and closing inventory.
The adjustment in picture 2 is unclear for calculations of above ratio
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