For all exercises, assume the perpetual inventory system is used unless stated otherwise.Correcting an inventory error—two yearsNature Foods Grocery.1 reported the following comparative income statements for the year ended June 30, 2019 and 2018:During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.RequirementsPrepare corrected income statements for the two years.State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement. NATURE FOODS GROCERYIncome StatementsYears Ended June 30, 2019 and 201820192018Net Sales Revenue$ 134,000$ 119,000Cost of Goods Sold:$ 17,00078,00095,00018,000Beginning Merchandise InventoryNet Cost of Purchases$ 14,00067,000Cost of Goods Available for Sale81,000Less: Ending Merchandise Inventory17,000Cost of Goods Sold77,00064,000Gross Profit57,00055,000Operating Expenses26,00021,000Net Income$ 31,000$ 34,000

Overstatement of ending inventory: If the ending inventory is overstated by accounting error, it…

Answered: NATURE FOODS GROCERY Income Statements…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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For all exercises, assume the perpetual inventory system is used unless stated otherwise.

Correcting an inventory error—two years

Nature Foods Grocery.1 reported the following comparative income statements for the year ended June 30, 2019 and 2018:

During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.

Requirements

Prepare corrected income statements for the two years.
State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.

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:
$ 17,000
78,000
95,000
18,000
Beginning Merchandise Inventory
Net Cost of Purchases
$ 14,000
67,000
Cost of Goods Available for Sale
81,000
Less: Ending Merchandise Inventory
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

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