The records of Kmeta Inc. show the following data for the years ended July 31:

After the company's July 31, 2015, year end, the accountant discovers two errors:
1. Ending inventory on July 31, 2013, was actually $33,000, not $24,000. Kmeta owned goods held on consignment at another company that were not included in the inventory account.
2. Kmeta purchased $15,000 of goods from a supplier on July 30, 2014, with shipping terms FOB destination. Although it did not receive the goods until August 4, 2014, the goods were included in the July 31, 2014, year-end inventory. The purchase was then recorded properly on August 4, 2014.
Instructions
(a) For each of the three years, prepare both incorrect and corrected income statements through to profit before income tax.
(b) What is the combined (total) impact of these errors on retained earnings (ignoring any income tax effects) for the three years before correction? After correction?
(c) Calculate both the incorrect and corrected inventory turnover ratios for 2015 and 2014.

Transcribed Image Text:

2015 2014 2013 Income statement: Sales Cost of goods sold Operating expenses $340,000 233,000 68,000 $320,000 220,000 64,000 $300,000 209,000 64,000 Statement of financial position: Merchandise inventory 40,000 40,000 24,000