The records of Kmeta Inc. show the following data for the years ended July 31
After the company’s July 31, 2012, year end, the accountant discovers two errors:
1. on July 31, 2010, was actually $33,000, not $24,000. Kmeta had goods held on consignment at another company that were not included in the inventory account.
2. A purchase of merchandise on account for $5,000 was recorded as a purchase in July 2011 (fiscal 2011) and included in the $40,000 2011 balance. It should have been recorded as a purchase in August 2011 (fiscal 2012). The of $40,000 was correct at the end of July 2012.
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 s for 2012 and 2011.
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