Correcting inventory errors over a three-year period [15-20 min]
Evergreen Carpets’ books show the following data. In early 2013, auditors found that the ending inventory for 2010 was understated by $6,000 and that the ending inventory for 2012 was overstated by $7,000. The ending inventory at December 31, 2011, was correct.
Requirements
1. Prepare corrected income statements for the three years.
2. State whether each year’s net income—before your corrections—is understated or overstated and indicate the amount of the understatement or overstatement.
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