Lyam Kasey Carpets’ books show the following data. In early 2027, auditors found that the ending merchandise inventory for 2024 was understated by $4,000 and that the ending merchandise inventory for 2026 was overstated by $5,000. The ending merchandise inventory at December 31, 2025, 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 two decimals.)  

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LYAM KASEY CARPETS Income Statement (Partial) Years Ended December 31, 2026, 2025, and 2024 2026 2025 Net Sales Revenue Cost of Goods Sold: Beginning Merchandise Inventory Plus: Net Cost of Inventory Purchased Cost of Goods Available for Sale Less: Ending Merchandise Inventory Cost of Goods Sold Gross Profit Operating Expenses Net Income $ 22,000 130,000 152,000 31,000 $ 201,000 121,000 80,000 56,000 $ 24,000 $ 25,000 104,000 129,000 22,000 $ 161,000 107,000 54,000 26,000 $ 28,000 $ 38,000 92,000 130,000 25,000 2024 $ 176,000 105,000 71,000 35,000 $ 36,000