Inventory Errors.
The income statements of Diamond Company for the years ended December 31, 19X1, and 19X2 follow.
| 19X1 | 19X2 | |
| Net sales | 440,000 | 483,000 |
| Cost of goods sold | ||
| Beginning inventory | 95,000 | 109,000 |
| Add: Net purchases | 380,000 | 404,000 |
| Goods available for sale | 475,000 | 513,000 |
| Less: Ending inventory | 109,000 | 127,000 |
| Cost of goods sold | 366,000 | 386,000 |
| Gross profit | 74,000 | 97,000 |
| Operating expenses | 58,000 | 67,000 |
| Net income | 16,000 | 30,000 |
Diamond uses a periodic inventory system. A detailed review of the accounting records disclosed the following:
a. A review of 19X1 purchase invoices revealed that a clerk had incorrectly recorded a $12,600 purchase as $1,260.
b. A $4,800 purchase was made on December 30, 19X2, terms F.O.B. shipping point. The invoice was not recorded in 19X2 nor were the goods included in the 19X2 ending physical inventory count. Both the goods and invoice were received in early 19X3, with the invoice being recorded at that time.
c. Goods costing $3,000 were accidentally excluded from the 19X1 ending physical inventory count. These goods were sold during 19X2, and all aspects of the sale were properly recorded.
Instructions:
a. Prepare corrected income statements for 19X1 and 19X2.
b. Determine the impact of the preceding errors on the December 31, 19X2, owner’s equity balance.
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