P6-42B Correcting inventory errors over a three-year period and computing inventory turnover and days’ sales in inventory 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 two decimals.)

Net Sales Revenue Cost of Goods Sold: 2015 $201,000 Beginning Merchandise Inventory Net Cost of Purchases $ 22,000 130,000 Cost of Goods Available for Sale Less: Ending Merchandise Inventory Cost of Goods Sold 152,000 31,000 121,000 Gross Profit Operating Expenses Net Income 2014 $161,000 2013 $176,000 $ 25,000 104,000 $ 38,000 129,000 22,000 92,000 130,000 25,000 80,000 56,000 107,000 54,000 26,000 105,000 71,000 35,000 $ 24,000 $ 28,000 $ 36,000