Question

The records of Shen Inc. show the following data for the years ended March 31:

		2018		2017		2016
Income statement:
Sales		$ 336,100		$ 317,000		$ 296,900
Cost of goods sold		233,000		223,000		211,400
Operating expenses		68,000		64,300		64,300
Statement of financial position:
Inventory		39,600		39,600		24,000

After the company’s March 31, 2018, year end, the accountant discovers two errors:

1.	Ending inventory on March 31, 2016, was actually $ 32,300, not $ 24,000. Shen owned goods held on consignment at another company that were not included in the inventory account.
2.	Shen purchased $ 14,600 of goods from a supplier on March 30, 2017, with shipping terms FOB shipping point. The goods were not received until April 4, 2017 and the goods were not included in the March 31, 2017, year-end inventory. The purchase was then recorded properly on April 4, 2017.

(a)

For each of the three years, prepare both incorrect and corrected income statements through to income before income tax.

INCORRECT

SHEN INC. Income Statement   Year Ended July 31Month Ended July 31a July 31
		2018		2017		2016
Sales		$		$		$
Cost of goods sold
Gross profit
Operating expenses
Income before income tax		$		$		$

SHEN INC. Statement of financial position   Year Ended July 31Month Ended July 31a July 31
		2018		2017		2016
		$		$		$

CORRECT

SHEN INC. Income Statement   Year Ended July 31Month Ended July 31a July 31
		2018		2017		2016
Sales		$		$		$
Cost of goods sold
Gross profit
Operating expenses
Income before income tax		$		$		$

SHEN INC. Statement of financial position   Year Ended July 31Month Ended July 31a July 31
		2018		2017		2016
		$		$		$

Answer 1

Solution a:

Shen Inc.
Incorrect Income Statement - For year 2018, 2017 and 2016
Particulars	2018	2017	2016
Sales	$336,100.00	$317,000.00	$296,900.00
Cost of goods sold	$233,000.00	$223,000.00	$211,400.00
Gross Profit	$103,100.00	$94,000.00	$85,500.00
Operating Expenses	$68,000.00	$64,300.00	$64,300.00
Income before income tax	$35,100.00	$29,700.00	$21,200.00

Shen Inc.
Incorrect Statement of financial postion - For year 2018, 2017 and 2016
Particulars	2018	2017	2016
Inventory	$39,600.00	$39,600.00	$24,000.00

Shen Inc.
Correct Income Statement - For year 2018, 2017 and 2016
Particulars	2018	2017	2016
Sales	$336,100.00	$317,000.00	$296,900.00
Cost of goods sold	$233,000.00	$231,300.00	$203,100.00
Gross Profit	$103,100.00	$85,700.00	$93,800.00
Operating Expenses	$68,000.00	$64,300.00	$64,300.00
Income before income tax	$35,100.00	$21,400.00	$29,500.00

Shen Inc.
Correct Statement of financial postion - For year 2018, 2017 and 2016
Particulars	2018	2017	2016
Inventory	$39,600.00	$54,200.00	$32,300.00

Note: Goods in transit on March 30, 2017 will not have any impact on COGS as transaction was not recorded. If transactin is recorded then purhcase and ending inventroy will increase with same amount, therefore it will not impact COGS. The impact of this transaction will have on ending inventory to be reported in balance sheet.