In 20x7, Alisa Harper opened a small retail store in a suburban mall. Called Harper Jeans Company, the shop sold designer jeans. Alisa Harper worked 14 hours a day and controlled all aspects of the operation. All sales were for cash or bank credit card. Harper Jeans Company was such a success that in 20x8, Harper decided to open a second store in another mall. Because the new shop needed her attention, she hired a manager to work in the original store with its two existing sales clerks. During 20x8, the new store was successful, but the operations of the original store did not match the first year's performance.
Concerned about this turn of events, Harper compared the two years' results for the original store. The figures are as follows:

In addition, Harper's analysis revealed that the cost and selling price of jeans were about the same in both years and that the level of operating expenses was roughly the same in both years, except for the new manager's $25,000 salary. Sales returns and allowances were insignificant amounts in both years.
Studying the situation further, Harper discovered the following facts about the cost of goods sold:

Still not satisfied, Harper went through all the individual sales and purchase records for the year. Both sales and purchases were verified. However, the 20x8 ending inventory should have been $57,000, given the unit purchases and sales during the year. After puzzling over all this information, Harper comes to you for accounting help?
1. Using Harper's new information, recompute the cost of goods sold for 20x7 and 20x8, and account for the difference in net income between 20x7 and 20x8?
2. Suggest at least two reasons for the discrepancy in the company's 20x8 ending inventory?

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20x8 20x7 Net sales $325,000 $350,000 225,000 225,000 $100,000 $125,000 50,000 $ 25,000 75,000 Gos marghs sold$705000 $72500 Gross margin Operating expenses Net income 75,000 20x8 20x7 $200,000 $271,000 15,000 20,000 19,000 27,000 Physical inventory, end of year 32,000 53,000 Purchases Total purchases allowances Freight-in