Allen's Hardware Store prepared the following analysis of cost of goods sold for the previous three years: $$72,000‾$48,000‾$55,000‾\begin{array}{lrr}& \underline{2015}& \underline{2016}& \underline{2017}\\ \text { Beginning inventory $ 1 / 1 $ } &\$40,000&\$18,000&\$25,000\\ \text {Cost of goods purchased } & \underline{50,000}& \underline{55,000}& \underline{70,000}\\ \text { Cost of goods available for sale } &90,000&73,000&95,000\\ \text { Ending inventory $ 12 / 31 $ } & \underline{18,000}& \underline{25,000}& \underline{40,000}\\ \text {Cost of goods sold } & \underline{\$72,000}&\underline{\$48,000}& \underline{\$55,000}\\ \end{array}$

Net income for the years 2015 2016 and 2017 was $75000 $60000 and $57000 respectively. Since net income was consistently declining Mr. Baden hired a new accountant to investigate the cause(s) for the declines.
The accountant determined the following:
1. Purchases of $20000 were not recorded in 2015.
2. The 2015 December 31 inventory should have been $26000.
3. The 2016 ending inventory included inventory costing $8000 that was purchased FOB destination and in transit at year end.
4. The 2017 ending inventory did not include goods costing $4000 that were shipped on December 29 to Wilson Plumbing Company FOB shipping point. The goods were still in transit at the end of the year.
Instructions
Determine the correct net income for each year. (Show all computations.)

Question

Allen's Hardware Store prepared the following analysis of cost of goods sold for the previous three years:   2015 ‾ 2016 ‾ 2017 ‾  Beginning inventory  1 / 1   $ 40 , 000 $ 18 , 000 $ 25 , 000 Cost of goods purchased  50 , 000 ‾ 55 , 000 ‾ 70 , 000 ‾  Cost of goods available for sale  90 , 000 73 , 000 95 , 000  Ending inventory  12 / 31   18 , 000 ‾ 25 , 000 ‾ 40 , 000 ‾ Cost of goods sold  $ 72 , 000 ‾ $ 48 , 000 ‾ $ 55 , 000 ‾ \begin{array}{lrr} &  \underline{2015} &  \underline{2016} &  \underline{2017}\  	ext { Beginning inventory   1 / 1   }  & \$40,000 & \$18,000 & \$25,000\ 	ext {Cost of goods purchased   }  &  \underline{50,000} &  \underline{55,000} &  \underline{70,000}\ 	ext { Cost of goods available for sale }  & 90,000 & 73,000 & 95,000\ 	ext {  Ending inventory   12 / 31   }  &  \underline{18,000} &  \underline{25,000} &  \underline{40,000}\  	ext {Cost of goods sold  }  &  \underline{\$72,000} & \underline{\$48,000} &  \underline{\$55,000}\ \end{array}  Beginning inventory 1/1  Cost of goods purchased   Cost of goods available for sale   Ending inventory 12/31  Cost of goods sold  ​ 2015 ​ $40 , 000 50 , 000 ​ 90 , 000 18 , 000 ​ $72 , 000 ​ ​ 2016 ​ $18 , 000 55 , 000 ​ 73 , 000 25 , 000 ​ $48 , 000 ​ ​ 2017 ​ $25 , 000 70 , 000 ​ 95 , 000 40 , 000 ​ $55 , 000 ​ ​ Net income for the years 2015 2016 and 2017 was $75000 $60000 and $57000 respectively. Since net income was consistently declining Mr. Baden hired a new accountant to investigate the cause(s) for the declines.The accountant determined the following:1. Purchases of $20000 were not recorded in 2015.2. The 2015 December 31 inventory should have been $26000.3. The 2016 ending inventory included inventory costing $8000 that was purchased FOB destination and in transit at year end.4. The 2017 ending inventory did not include goods costing $4000 that were shipped on December 29 to Wilson Plumbing Company FOB shipping point. The goods were still in transit at the end of the year.InstructionsDetermine the correct net income for each year. (Show all computations.)

Zybrea Knight · Accepted Answer

Final Answer :  2015 ‾ 2016 ‾ 2017 ‾  Beginning inventory  1 / 1   $ 40 , 000 $ 26 , 000 $ 17 , 000 Cost of goods purchased  ( 1 ) 70 , 000 ‾ 55 , 000 ‾ 70 , 000 ‾  Cost of goods available for sale  110 , 000 81 , 000 87 , 000  Ending inventory  12 / 31   ( 2 ) 26 , 000 ‾ ( 3 ) 17 , 000 ‾ 40 , 000 ‾ Cost of goods sold  $ 84 , 000 ‾ $ 64 , 000 ‾ $ 47 , 000 ‾ \begin{array}{lrr} &  \underline{2015} &  \underline{2016} &  \underline{2017}\  \text { Beginning inventory   1 / 1   }  & \$40,000 & \$26,000 & \$17,000\ \text {Cost of goods purchased   }  & (1) \quad\underline{70,000} &  \underline{55,000} &  \underline{70,000}\ \text { Cost of goods available for sale }  & 110,000 & 81,000 & 87,000\ \text {  Ending inventory   12 / 31   }  &  (2)\quad\underline{26,000} &  (3)\quad\underline{17,000} &  \underline{40,000}\  \text {Cost of goods sold  }  &  \underline{\$84,000} & \underline{\$64,000} &  \underline{\$47,000}\ \end{array}  Beginning inventory 1/1  Cost of goods purchased   Cost of goods available for sale   Ending inventory 12/31  Cost of goods sold  ​ 2015 ​ $40 , 000 ( 1 ) 70 , 000 ​ 110 , 000 ( 2 ) 26 , 000 ​ $84 , 000 ​ ​ 2016 ​ $26 , 000 55 , 000 ​ 81 , 000 ( 3 ) 17 , 000 ​ $64 , 000 ​ ​ 2017 ​ $17 , 000 70 , 000 ​ 87 , 000 40 , 000 ​ $47 , 000 ​ ​ 2015 ‾ 2016 ‾ 2017 ‾  Net Income previously reported  $ 75 , 000 $ 60 , 000 $ 57 , 000 Add. Prior cost of goods sold  72 , 000 48 , 000 55 , 000  Less: Revised cost of goods sold  ( 84 , 000 ) ‾ ( 64 , 000 ) ‾ ( 47 , 000 ) ‾  Corrected Net Income  $ 63 , 000 ‾ $ 44 , 000 ‾ $ 65 , 000 ‾ \begin{array}{lrr} &  \underline{2015} &  \underline{2016} &  \underline{2017}\  \text { Net Income previously reported  }  & \$75,000 & \$60,000 & \$57,000\ \text {Add. Prior cost of goods sold   }  & 72,000 & 48,000 & 55,000\ \text { Less: Revised cost of goods sold }  &  \underline{(84,000)} &  \underline{(64,000)} &  \underline{(47,000)}\ \text {  Corrected Net Income }  &  \underline{\$63,000} &  \underline{\$44,000} &  \underline{\$65,000}\\end{array}  Net Income previously reported  Add. Prior cost of goods sold   Less: Revised cost of goods sold   Corrected Net Income  ​ 2015 ​ $75 , 000 72 , 000 ( 84 , 000 ) ​ $63 , 000 ​ ​ 2016 ​ $60 , 000 48 , 000 ( 64 , 000 ) ​ $44 , 000 ​ ​ 2017 ​ $57 , 000 55 , 000 ( 47 , 000 ) ​ $65 , 000 ​ ​  (1) Additional purchases  $ 20 , 000 ( 2 )  Additional ending inventory  $ 6 , 000  (3) Less ending inventory  $ 8 , 000 \begin{array}{ll}\text { (1) Additional purchases }  &  \$ 20,000 \(2) \text { Additional ending inventory }  &  \$ 6,000 \\text { (3) Less ending inventory }  &  \$ 8,000\end{array}  (1) Additional purchases  ( 2 )  Additional ending inventory   (3) Less ending inventory  ​ $20 , 000 $6 , 000 $8 , 000 ​

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