P6-77B. (Learning Objective 5: Correcting inventory errors over a three-year period) The accounting records of Waterville Video Sales show the data betow (in millions). The shareholders are very happy with Waterville’s steady increase in net income.

Auditors discovered that the ending inventory for 20X4 was understated by €2 million and that the ending inventory for 20X5 was also understated by €2 million. The ending inventory at December 31, 20X6, was correct.
Requirements 1. Show corrected Income Statements for each of the three years.
2. How much did these assumed corrections add to or take away from Waterville’s total net income over the three-year period? How did the corrections affect the trend of net income?
3. Will Waterville’s shareholders still be happy with the company’s trend of net income? Give the reason for your answer.

Net sales revenue.... Cost of goods sold: 20X6 Beginning inventory... Net purchases Cost of goods available.. Less ending inventory... 9 32 41 (10) Cost of goods sold. Gross profit............... Operating expenses... Net income.... 38 20X5 35 20X4 7 32 31 (9) 28 3 $ 4 $ 2633 35 (8) 27 5 $ 2