(Correcting inventory errors over a 3 year period) The accounting records of Oriental Rugs show these data (in thousands): Auditors discovered that the ending inventory for 2005 was overstated by $100 thousand and that the ending inventory for 2006 was understated by $50 thousand. The ending inventory at December 31, 2007, was correct.
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Oriental Rugs |
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(Amounts in thousands) |
2007 |
2006 |
2005 |
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Net sales revenue |
$1,400 |
$1,200 |
$1,100 |
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Cost of goods sold: |
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Beginning inventory |
$ 400 |
$ 300 |
$ 200 |
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Purchases |
800 |
700 |
600 |
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Goods available |
1,200 |
1,000 |
800 |
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Less ending inventory |
(500) |
(400) |
(300) |
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Cost of goods sold |
700 |
600 |
500 |
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Gross profit |
700 |
600 |
600 |
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Total operating expenses |
500 |
430 |
450 |
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Net income |
$ 200 |
$ 170 |
$ 150 |
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Required
1. Show correct income statements for each of the 3 years.
2. How much did these corrections add to, or take away from, Oriental Rugs’ total net income over the 3 year period? How did the corrections affect the trend of net income?