The accounting records of Downton Home Store show these data (in millions). The shareholders are very happy with Downton’s steady increase in net income.

Auditors discovered that the ending inventory for 2012 was understated by $5 million and that the ending inventory for 2013 was understated by $3 million. The ending inventory at December 31, 2014, was correct.

1. Show corrected income statements for each of the three years.
2. How much did these assumed corrections add to or take away from Downton’s total net income over the three-year period? How did the corrections affect the trend of net income?
3. Will Downton’s shareholders still be happy with the company’s trend of net income? Give the reason for youranswer.

  • CreatedJuly 25, 2014
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