Build Right Supply, Co., shows the following financial statement data for 2016, 2017, and 2018. Before issuing the 2018 statements, auditors found the ending inventory for 2016 was understated by $1,000 and that the ending inventory for 2018 was overstated by $3,000. The ending inventory at December 31, 2017, was correct.

Requirements

1. State whether each year?s net income before corrections is understated or overstated, and indicate the amount of the understatement or overstatement.

2. Prepare corrected income statements for the three years.

3. What will be the impact on the 2018 income statement if the 2016 inventory error is left uncorrected?

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2017 2018 2016 Sales Revenue Cost of Goods Sold: Beginning Inventory Net Purchases $388,000 $ 408,000 $383,000 $ 20,000 $ 20,000 232,000 $ 17,000 Cost of Goods Available 252,000 Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Net Income 247,000 20,000 254,000 17,000 238,000 170,000 38,000 227,000 161,000 237,000 146,000 28,000 $ 132,000 $127,000 $118,000