Chapter 6, Problem 6.31AP

Correcting inventory errors over a three-year period and computing inventory turnover and days’ sales in inventory

Lake Air Carpets’s books how the following data. 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.

Requirements

1. 1. Prepare corrected income statements for the three years.
2. 2. State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.
3. 3. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all numbers to two decimals.)