The shareholders are very happy with Columbia€™s steady increase in net income.

Auditors discovered that the ending inventory for 2010 was understated by $1 million and that the ending inventory for 2011 was also understated by $1 million. The ending inventory at December 31, 2012, 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 Columbia€™s total net income over the three-year period? How did the corrections affect the trend of net income?
3. Will Columbia€™s shareholders still be happy with the company€™s trend of net income? Give the reason for youranswer.

Transcribed Image Text:

2012 2011 2010 S38 S35 S32 Cost of goods sold Beginning invento Net purchases $ 9 26 35 (10) S 10 .. 30 available.41 38 Less ending inventory(12 Cost of goods sold 29 9 6 S 3 27 25 Gross profit 6 Net income S 2