E6-27 Great Foods Grocery reported the following comparative income statement for the

Price: $2.99

E6-27 Correcting an inventory error—two years [15–20 min]

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