Question

Vibrant Company had $1,020,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $560,000 in each of those years. It also maintained a $320,000 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 $300,000 rather than the correct $320,000.

Required:
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.
  

Answer 1

Requirement-1
Comparative Income statement
	2016		2017		2018		3 -year Total
Sales		10,20,000		10,20,000		10,20,000		30,60,000
cost of goods sold
Beginning inventory	$3,20,000		$3,20,000		$3,20,000		$3,20,000
Add:purchase	$5,60,000		$5,60,000		$5,60,000		$16,80,000
cost of goods available for sle	$8,80,000		$8,80,000		$8,80,000		$20,00,000
Less:Ending inventory	$3,20,000		$3,20,000		$3,20,000		$3,20,000
cost of goods sold		$5,60,000		$5,60,000		$5,60,000		$16,80,000
Gross profit		$4,60,000		$4,60,000		$4,60,000		$13,80,000

Requirement-2
Comparative Income statment
	2016		2017		2018		3 -year Total
Sales		10,20,000		10,20,000		10,20,000		30,60,000
cost of goods sold
Beginning inventory	$3,20,000		$3,00,000		$3,20,000		$3,20,000
Add:purchase	$5,60,000		$5,60,000		$5,60,000		$16,80,000
cost of goods available for sle	$8,80,000		$8,60,000		$8,80,000		$20,00,000
Less:Ending inventory	$3,00,000		$3,20,000		$3,20,000		$3,20,000
cost of goods sold		$5,80,000		$5,40,000		$5,60,000		$16,80,000
Gross profit		$4,40,000		$4,80,000		$4,60,000		$13,80,000

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