I need assistance with the attached Excel document. Unable to wrap my head around the revised statements after overestimation of inventory. Thanks a bunch.
-4 A Inventory Error General Instructions 1. The following worksheet may be used to complete the exercise/problem. You may need to refer to your textbook for additional information. 2. The blue cells are for data entry. Enter text in the T cells, figures in the F cells, calculation in C cells P5-4A The following condensed income statements and balance sheets are available for Planter Stores for a two-year period. (All amounts are stated in thousands of dollars.) Income Statements Revenues Cost of goods sold Gross profit Operating expenses Net income Balance Sheets Cash Inventory Other current assets Long-term assets, net Total assets FY2012 35,982 12,594 $ 23,388 13,488 $ 9,900 $ December 31, 2012 $ 9,400 4,500 1,600 24,500 $ 40,000 Current liabilities Capital stock Retained earnings Total liabilities and stockholders' equity $ 9,380 18,000 12,620 40,000 FY2011 26,890 9,912 $ 16,978 10,578 $ 6,400 $ December 31, 2011 $ 4,100 5,400 1,250 24,600 $ 35,350 $ 10,600 18,000 6,750 35,350 Before releasing the 2012 annual report, Planter's controller learns that the inventory of one of the stores (amounting to $500,000) was counted twice in the December 31, 2011, inventory. The inventory was correctly counted in the December 31, 2012 inventory. Required 1. Prepare revised income statements and balance sheets for Planter Stores for each of the two years. Ignore the effect of income taxes. (Input all amounts in thousands of dollars.) Revised income statements: T T Gross profit T Net income F F C F C Revised balance sheets: T T T Current assets T Total assets F F F C F C F F F C F C F F F C F F F C T T T Total liabilities and stockholders' equity FY2012 FY2011 F F C F C 12/31/2012 12/31/2011 2. Compute the current ratio at December 31, 2011, before the statements are revised, and compute the current ratio at the same date after the statements are revised. If Planter applied for a loan in early 2012 and the lender required a current ratio of at least 1 to 1, would the error have affected the loan? Explain your answer. Current ratio: Before revision: After revision: Formula: C F F F T C = C = T 3. If Planter did not prepare revised statements before releasing the 2012 annual report, what would be the amount of overstatement or understatement of net income for the two-year period? What would be the overstatement or understatement of retained earnings at December 31, 2012, if revised statements were not prepared? Net income for two years, before revision: Net income for two years, after revision: C C T Retained earnings at December 31, 2012, before the revision: Retained earnings at December 31, 2012, after the revision: F F T 4. Given your answers to parts (2) and (3), does it matter if Planter bothers to restate the financial statements of the two years to correct the error? Explain your answer. T
