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The net income per books of Russell Industries Limited was determined without any knowledge of the following errors. The 2012 year was Russell's first year

The net income per books of Russell Industries Limited was determined without any knowledge of the following errors. The 2012 year was Russell's first year in business. No dividends have been declared or paid.

Year

Net Income per Books

Error in Ending Inventory

2012

$50,000

Overstated

$5,000

2013

52,000

Overstated

9,000

2014

54,000

Understated

11,000

2015

56,000

No error

2016

58,000

Understated

2,000

2017

60,000

Overstated

10,000

Instructions

(a)

Prepare a work sheet to show the adjusted net income figure for each of the six years after taking the inventory corrections into account.

(b)

Prepare a schedule that indicates both the original retained earnings balance reported at the end of each year and the corrected amount.

(c)

Consider the trends in the increase in income from 2012 to 2017 as originally reported and as revised after the corrections. Would you suspect that the income is being manipulated by adjusting the ending balance in the inventory account?

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