Evergreen Carpets's books show the following data: 2017 2016 2015
Net Sales Revenue $218,000 $161,000 $176,000
Cost of Goods Sold:
Beginning Merchandise
Inventory $21,000 $25,000 $41,000
Net Cost of Purchases 130,000 98,000 83,000
Cost of Goods
Available for Sale 151,000 123,000 124,000
Less: Ending
Merchandise Inventory 33,000 21,000 25,000
Cost of Goods Sold 118,000 102,000 99,000
Gross Profit 100,000 59,000 77,000
Operating Expenses 75,000 29,000 43,000
Net Income $25,000 $30,000 $34,000
In early 2018, auditors found that the ending merchandise inventory for 2015 was understated by $ 6,000 and that the ending merchandise inventory for 2017 was overstated by $ 7,000. The ending merchandise inventory at December 31, 2016, was correct. Read the requirements.
Requirement 1. Prepare corrected income statements for the three years.
Evergreen Carpets
Income Statement
For the Years Ended December 31, 2017, 2016, and 2015
2017 2016 2015
Ending Merchandise Ending Merchandise
Inventory Overstated Inventory Understated
by $7,000 Correct by $6,000
Net Sales Revenue
Cost of Goods Sold:
Beginning Merchandise Inventory
Net Cost of Purchases
Cost of Goods Available for Sale
Less: Ending Merchandise Inventory
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income
Requirement 2. State whether each year's net income-before your corrections-is understated or overstated, and indicate the amount of the understatement or overstatement.
Year: Prior to correction net income was
2017
2016
2015
Requirement 3. Compute the inventory turnover and days' sales in inventory using the corrected income statement for the three years. (Round all numbers to two decimals.)
Select the labels and enter the amounts to compute inventory turnover for each year. (Round your answers to two decimalplaces, X. XX.)
/ = Inventory turnover
2017 / = times
2016 / = times
2015 / = times
Now select the labels and enter the amounts to compute days' sales in inventory for each year. (Enter all amounts to two decimal places, X. XX.)
/ = Days' sales in inventory
2017 / = days
2016 / = days
2015 / = days