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Correcting an inventory error-two years
Great Foods Grocery reported the following comparative income statement for the years ended June 30, 2012 and 2011:
GREAT FOODS GROCERY Income Statements Years Ended June 30, 2012 and 2011
2012
2011
Sales revenue
$ 139,000
$ 120,000
Cost of goods sold:
Beginning inventory
$13,000
$12,000
Net purchases
76,000
70,000
Cost of goods available
$89,000
$82,000
Ending inventory
(17,000)
(13,000)
Cost of goods sold
72,000
69,000
Gross profit
$ 67,000
$ 51,000
Operating expenses
23,000
18,000
Net income
$ 44,000
$ 33,000
During 2012, Great Foods discovered that ending 2011 inventory was overstated by $4,500.
Requirements
1. Prepare corrected income statements for the two 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.
The pricing objective of maximizing profits: has not been affected by other, more socially focused concerns .
Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date.
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