Reference no: EM132461114
The following highly condensed income statements and balance sheets are available for Budget Stores for a two-year period. (All amounts are stated in thousands of dollars.)
Income Statements 2017 2016
Revenues $20,000 $15,000
Cost of goods sold $13,000 $10,000
Gross profit $7,000 $5,000
Operating expenses $3,000 $2,000
Net income $4,000 $3,000
Balance Sheets December 31, 2017 December 31, 2016
Cash $1,700 $1,500
Inventory $4,200 $3,500
Other current assets $2,500 $2,000
Long-term assets $15,000 $14,000
Total assets $23,400 $21,000
Liabilities $8,500 $7,000
Capital stock $5,000 $5,000
Retained earnings $9,900 $9,000
Total liabilities and
stockholders' equity $23,400 $21,000
Before releasing the 2017 annual report, Budget's controller learns that the inventory of one of the stores (amounting to $600,000) was inadvertently omitted from the count on December 31, 2016. The inventory of the store was correctly included in the December 31, 2017, count.
Required:
Question 1. Prepare revised income statements for Budget Stores for each of the two years. Ignore the effect of income taxes. Enter answers in thousands of dollars.
- If ending 2016 inventory was understated, what impact would that have on 2016 cost of goods sold, 2017 beginning inventory, and 2017 cost of goods sold?
- Be sure to adjust cost of goods sold for both years.
- Prepare revised balance sheets for Budget Stores for each of the two years. Ignore the effect of income taxes. Enter answers in thousands of dollars.
Question ?2. If Budget Stores did not prepare revised statements before releasing the 2017 annual report, would there be the amount of overstatement or understatement of net income for the two-year period?
Would there be an overstatement or understatement of retained earnings at December 31, 2017, if revised statements were not prepared?
Question 3. If Budget does not restate its financial statements after discovering the inventory error, what impact will it have on the financial statements?