Posted: July 19th, 2016

Required

1. Prepare revised income statements and balance sheets for Planter Stores for each of

the two years. Ignore the effect of income taxes.

(Input all amounts in thousands of dollars.)

Revised income statements:FY2012 FY2011

T F F

T F F

Gross profit C C

T F F

Net income C C

Revised balance sheets:

######## ########

T F F

T F F

T F F

Current

assets C C

T F F

Total assets C C

T F F

T F F

T F F

Total liabilities and stockholders’ equity

C C

2. Compute the current ratio at December 31, 2011, before the statements are revised, and compute the

current ratio at the same date after the statements are revised. If Planter applied for a loan in early 2012

and the lender required a current ratio of at least 1 to 1, would the error have affected the loan?

Explain your answer.

Current

ratio: Formula: T

Before revision: C C

=

F

=

F C

After revision: F

T

3. If Planter did not prepare revised statements before releasing the 2012 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, 2012, if revised statements

were not prepared?

Net income for two years, before revision: C

Net income for two years, after revision: C

T

Retained earnings at December 31, 2012, before the revision:

F

Retained earnings at December 31, 2012, after F revision:

the

T

4. Given your answers to parts (2) and (3), does it matter if Planter bothers to restate the

financial statements of the two years to correct the error? Explain your answer.

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