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Columbia Video Sales reported these data adapted in millions The shareholders are very happy with Columbia’s steady increase in net income 20X6 20X5 20X4 Net sales revenue

Columbia Video Sales reported these data (adapted, in millions). The shareholders are very happy with Columbia’s steady increase in net income.

 

20X6

 

20X5

 

20X4

 

Net sales revenue

 

$36

 

$33

 

$30

Cost of goods sold:

           

Beginning inventory

$ 6

 

$ 5

 

$ 4

 

Purchases

26

 

24

 

22

 

Goods available

32

 

29

 

26

 

Less: Ending inventory

(7)

 

(6)

 

(5)

 

Cost of goods sold

 

25

 

23

 

21

Gross profit

 

11

 

10

 

9

Total operating expenses

 

8

 

8

 

8

Net income

 

$ 3

 

$ 2

 

$ 1

Auditors discovered that the ending inventory for 20X4 was understated by $1 million and that the ending inventory for 20X5 was also understated by $1 million. The ending inventory for 20X6 was correct.

Required

1. Show corrected income statements for each of the 3 years.

2. How much did these assumed corrections add to or take away from Columbia’s total net income over the 3-year period? How did the corrections affect the trend of net income?

3. Will Columbia’s shareholders still be happy with the company’s trend of net income? Give the reason for your answer. (Challenge)

May 21 2020 View more View Less

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