The accounting records of Juniper Cove Music Store show these data (in thousands

Question

The accounting records of Juniper Cove Music Store show these data (in thousands): In early 2009, auditors discovered that the ending inventory for 2006, as reported here, was understated by $6 thousand and that the ending inventory for 2008 was overstated by $7 thousand. The ending inventory at December 31, 2007, was correct. Requirements 1. Show corrected income statements for the three years. 2. State whether each year's net income as reported here is understated or overstated. For each incorrect net income figure, indicate the amount of the understatement or overstatement.

Explanation / Answer

2008 2007 2006 2008 2007 2006 Net sales revenue 210 165 170 Net sales revenue 210 165 170 Cost of goods sold Cost of goods sold Beginning inventory 20 25 40 Beginning inventory 20 25 40 Net purchases 135 100 90 Net purchases 135 100 90 Cost of goods available 155 125 130 Cost of goods available 155 125 130 Less:Ending inventory 30 20 25 Less:Ending inventory 23 20 31 Cost of goods sold 125 105 105 Cost of goods sold 132 105 99 Gross Profit 85 60 65 Gross Profit 78 60 71 Operating expenses 58 32 29 Operating expenses 58 32 29 Net Income 27 28 36 Net Income 20 28 42 Year 2006 Income was underestimated by $6000 Year 2008 Income was overestimated by $7000

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