Question

14. Speers hardware store prepared the following analysis of cost of goods sold for the previous Beginning inventory 1/1 2016 2017 2018 Cost of goods purchased €40,000 €18,000 €25,000 50,000 55,000 70,000 Cost of goods available for sale 90,000 73,000 95,000 Ending inventory 12/31 18,000 25,000 40,000 Cost of goods sold £72,000 £48,000 £55,000 Net income for the years 2016, 2017, and 2018 was €70,000 €60,000, and €65,000, respectively. Since net income was consistently declining, Mr. Speer hired a new accountant to investigate the cause(s) for the declines. The accountant determined the following: 1. Purchases of €20,000 were not recorded in 2016. 2. The 2016 December 31 inventory should have been €21,000. 3. The 2017 ending inventory included inventory costing €8,000 that was purchased FOB destination and in transit at year end. 4. The 2018 ending inventory did not include goods costing €4,000 that were shipped on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year. Instructions Determine the correct net income for each year. (Show all computations.) (9%)

Answer 1

	2016	2017	2018
Beginning inventory	€            40,000	€          21,000	€         17,000
Cost of goods purchased	€            70,000	€          55,000	€         70,000
Cost of goods available for asle	€        1,10,000	€          76,000	€         87,000
Ending inventory	€            21,000	€          17,000	€         40,000
Cost of goods sold	€            89,000	€          59,000	€         47,000
Sales	€            70,000	€          60,000	€         65,000
Net income	€          -19,000	€            1,000	€         18,000
Note:
1] It is presumed that goods of Euro 8000 was not
included in purchases of 2017, but is included in the
purchases of 2018; that is the purchase entries for
Euro 8000 were passed correctly.
2] NO adjustment for item [4] is required as, the
shipment of Euro 4000 is not included in stock and
would have been correctly included in purchases
sales of 2018.