Question

Vibrant Company had $980,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $540,000 in each of those years. It also maintained a $280,000 physical inventory from the beginning to the end of that three-year period. In accounting for inventory, it made an error at the end of Year 1 that caused its Year 1 ending inventory to appear on its statements as $260,000 rather than the correct $280,000.

Required:
1. Determine the correct amount of the company’s gross profit in each of Year 1, Year 2, and Year 3.
2. Prepare comparative income statements to show the effect of this error on the company's cost of goods sold and gross profit for each of Year 1, Year 2, and Year 3.

	VIBRANT COMPANY Comparative Income Statements Year 1 Year 2 Year 3 3-year total $0 Cost of goods sold 0 0 0 Cost of goods sold 0 0 0 0 Gross profit $0 $0 $0 $

Answer 1

Answer
Required 1
Vibrant company
Compartive income statements
	Year-1		Year-2		Year-3		3-year total
Sales		$980,000		$980,000		$980,000	$2,940,000
Cost of goods sold
Beginning inventory	$280,000		$280,000		$280,000
cost of purchases	$540,000		$540,000		$540,000
goods available for sale	$820,000		$820,000		$ 82,000
Ending inventory	$280,000		$280,000		$280,000
Cost of goods sold		$540,000		$540,000		$540,000	$1,620,000
Gross profit		$440,000		$440,000		$440,000	$1,320,000

Required 2
Vibrant company
Compartive income statements
	Year-1		Year-2		Year-3		3-year total
Sales		$980,000		$980,000		$980,000	$2,940,000
Cost of goods sold
Beginning inventory	$280,000		$260,000		$280,000
cost of purchases	$540,000		$540,000		$540,000
goods available for sale	$820,000		$800,000		$820,000
less- Ending inventory	$260,000		$280,000		$280,000
Cost of goods sold		$560,000		$520,000		$540,000	$1,620,000
Gross profit		$420,000		$460,000		$440,000	$1,320,000
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