Organic Foods Grocery reported the following comparative income statements for the years ended June 30, 2026 and 2025: 

During 2026, Organic Foods Grocery discovered that ending 2025 merchandise inventory was overstated by $4,500. 

Requirements 

1. Prepare corrected income statements for the years ended June 30, 2026 and 2025. 

2. State whether each year’s net income—before your corrections—is understated or overstated and indicate the amount of the understatement or overstatement.

Transcribed Image Text:

ORGANIC FOODS GROCERY Income Statements Years Ended June 30, 2026 and 2025 2026 Net Sales Revenue Cost of Goods Sold: 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 $ 13,000 76,000 89,000 17,000 $ 139,000 72,000 67,000 23,000 $ 44,000 $ 12,000 70,000 82,000 13,000 2025 $ 120,000 69,000 51,000 18,000 $ 33,000