Peaceful Carpets books show the following data. In early 2016, auditors found that the ending merchandise inventory
Question:
Peaceful Carpets’ books show the following data. In early 2016, auditors found that the ending merchandise inventory for 2013 was understated by $ 4,000 and that the ending merchandise inventory for 2015 was overstated by $ 5,000. The ending merchandise inventory at December 31, 2014, was correct.
Requirements
1. Prepare corrected income statements for the three years.
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. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all numbers to twodecimals.)
2015 2014 2013 Net Sales Revenue Cost of Goods Sold: 201,000 161,000 176,000 Beginning Merchandise Inventory 22,000 Net Cost of Purchases Cost of Goods Available for Sale152,000 Less: Ending Merchandise Inventory 31,000 Cost of Goods Sold 25,000 104,000 129,000 22,000 38,000 92,000 130,000 25,000 130,000 Gross Profit Operating Expenses Net Income 121,000 80,000 56,000 s 24,000 107,000 54,000 26,000 $ 28,000 105,000 71,000 35,000 S 36,000
Step by Step Answer:
Requirement 1 Corrected income statements PEACEFUL CARPETS Income Statements Years Ended December 20...View the full answer
Horngrens Financial and Managerial Accounting
ISBN: 978-0133255584
4th Edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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