Question

Darlington Inc. reported the following amounts on their financial statements for Year 1, Year 2 and Year 3:


Ended December 31
Reported Amounts Year 1 Year 2 Year 3
Inventory $155,000 $165,000 $110,000
Cost of goods sold 75,000 87,000 77,000
Net income 22,000 25,000 21,000

It was discovered early in Year 4 that the ending inventory at the end of Year 1 was overstated by $6,000 and the ending inventory at the end of Year 2 was understated by $2,500. The ending inventory at the end of Year 3 was correctly reported.

Required:

Ignoring income taxes, determine the correct amounts of cost of goods sold and net income for each of the three years and total assets at the end of each the three years and complete the table below. Show your work.


Ended December 31
Reported Amounts Year 1 Year 2 Year 3
Inventory $110,000
Cost of goods sold
Net income

Supporting calculations:

Answer

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