An examination of the financial records of Lanal Company on 2009 December 31, disclosed the following with regard to merchandise inventory for 2009 and prior years:
2005 December 31, inventory was correct.
2006 December 31, inventory was overstated USD 200,000.
2007 December 31, inventory was overstated USD 100,000.
2081 December 31, inventory was understated USD 220,000.
2009 December 31, inventory was correct.
The reported net income for each year was:
|
2006 |
$384,000 |
|
2007 |
544,000 |
|
2008 |
670,000 |
|
2009 |
846,000 |
a. Prepare a schedule of corrected net income for each of the four years, 2006-2009.
b. What error(s) would have been included in each December 31 balance sheet? Assume each year”s error is independent of the other years” errors.
c. Comment on the implications of your corrected net income as contrasted with reported net income.