Inventory Error The following highly condensed income statements and balance sheets are available… 1 answer below »

Inventory Error

The following highly condensed income statements and balance sheets are available for

Budget Stores for a two-year period. (All amounts are stated in thousands of dollars.)

Before releasing the 2008 annual report, Budget’s controller learns that the inventory of one of the

stores (amounting to $600,000) was inadvertently omitted from the count on December 31,

2007. The inventory of the store was correctly included in the December 31, 2008, count.

Required

1. Prepare revised income statements and balance sheets for Budget Stores for each of the two

years. Ignore the effect of income taxes.

2. If Budget did not prepare revised statements before releasing the 2008 annual report, what

would be the amount of overstatement or understatement of net income for the two-year

period? What would be the overstatement or understatement of retained earnings at December

31, 2008, if revised statements were not prepared?

3. Given your answers in (2), does it matter if Budget bothers to restate the financial statements

of the two years to rectify the error? Explain your answer.