Old Faithful Carpets’ books show the following data. In early 2027, auditors found that the ending merchandise inventory for 2024 was understated by $6,000 and that the ending merchandise inventory for 2026 was overstated by $7,000. The ending merchandise inventory at December 31, 2025, was correct. 

Requirements 

1. Prepare corrected income statements for the three 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. 

3. Compute the inventory turnover and days’ sales in inventory using the corrected income statements for the three years. (Round all numbers to two decimals.)

Transcribed Image Text:

Net Sales Revenue Cost of Goods Sold: OLD FAITHFUL CARPETS Income Statement (Partial) Years Ended December 31, 2026, 2025, and 2024 2026 2025 Beginning Merchandise Inventory Plus: Net Cost of Inventory Purchased Cost of Goods Available for Sale Less: Ending Merchandise Inventory Cost of Goods Sold Gross Profit Operating Expenses Net Income $ 20,000 140,000 160,000 29,000 $ 210,000 131,000 79,000 53,000 $ 26,000 $ 27,000 108,000 135,000 20,000 $ 162,000 115,000 47,000 18,000 $ 29,000 $ 41,000 98,000 139,000 27,000 2024 $ 169,000 112,000 57,000 24,000 $ 33,000