The income statements for Picard Company for the three years ending in 2011 appear below.
During 2011, Picard discovered that the 2009 ending inventory had been misstated due to the following two transactions being recorded incorrectly:
a. Inventory costing $37,000 that was returned to the manufacturer (a purchase return) was not recorded. The items were included in ending inventory.
b. A credit purchase of inventory made on August 30, 2009, for $12,800 was recorded twice.
The goods were shipped F.O.B. shipping point and were shipped on September 5, 2009.
1. Was ending inventory for 2009 overstated or understated? By how much?
2. Prepare correct income statements for all three years.
3. Did the error in 2009 affect cumulative net income for the three-year period? Explain your response.
4. Why was the 2011 net income unaffected?

  • CreatedSeptember 22, 2015
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