Question

​​​​​​​Vibrant Company had $910,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $505,000 in each of those years. It also maintained a $210,000 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 2016 that caused its year-end 2016 inventory to appear on its statements as $190,000 rather than the correct $210,000.

1. Determine the correct amount of the company’s gross profit in each of the years 2016–2018.
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 the years 2016−2018.

Determine the correct amount of the company's gross profit in each of the years 2016−2018.

VIBRANT COMPANY Comparative Income Statements 2016 2017 2018 3-year total Cost of goods sold Cost of goods sold Gross profit

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 the years 2016−2018.

VIBRANT COMPANY Comparative Income Statements 2016 2017 2018 3-year total Cost of goods sold Cost of goods sold Gross profit

Answer 1

Solution 1:

Vibrant Company
Comparative Income Statement
Compuation of Correct Gross Profit
Particulars	2016		2017		2018		3 years total
Sales		$910,000.00		$910,000.00		$910,000.00	$2,730,000.00
Cost of goods sold:
Beginning inventory	$210,000.00		$210,000.00		$210,000.00
Purchases	$505,000.00		$505,000.00		$505,000.00
Goods available for sale	$715,000.00		$715,000.00		$715,000.00
Ending inventory	$210,000.00		$210,000.00		$210,000.00
Cost of goods sold		$505,000.00		$505,000.00		$505,000.00	$1,515,000.00
Gross Profit		$405,000.00		$405,000.00		$210,000.00	$1,020,000.00

Solution 2:

Vibrant Company
Comparative Income Statement
Effect of error on company cost of goods sold and Gross Profit
Particulars	2016		2017		2018		3 years total
Sales		$910,000.00		$910,000.00		$910,000.00	$2,730,000.00
Cost of goods sold:
Beginning inventory	$210,000.00		$190,000.00		$210,000.00
Purchases	$505,000.00		$505,000.00		$505,000.00
Goods available for sale	$715,000.00		$695,000.00		$715,000.00
Ending inventory	$190,000.00		$210,000.00		$210,000.00
Cost of goods sold		$525,000.00		$485,000.00		$505,000.00	$1,515,000.00
Gross Profit		$385,000.00		$425,000.00		$210,000.00	$1,020,000.00