Question
In: Accounting
Sheffield Inc. reported the following partial statement of income data for the years ended December 31,...
Sheffield Inc. reported the following partial statement of
income data for the years ended December 31, 2021, and
2020:
| 2021 | 2020 | ||||
|---|---|---|---|---|---|
| Sales | $263,000 | $254,000 | |||
| Cost of goods sold | 204,000 | 199,390 | |||
| Gross profit | 59,000 | 54,610 |
The company reported inventory in the statement of financial
position at $46,000, $49,500, and $48,000 at the end of 2019, 2020,
and 2021, respectively. The ending inventory amounts for 2019 and
2021 are correct. However, the ending inventory at December 31,
2020, is understated by $7,620.
Prepare correct statements of income for 2020 and 2021 through
to gross profit.
| 2021 | 2020 | |||
|---|---|---|---|---|
| Sales | $enter a dollar amount | $enter a dollar amount | ||
| Cost of goods sold | enter a dollar amount | enter a dollar amount | ||
| Gross profit | $enter a total amount | $enter a total amount |
Solutions
Expert Solution
| 2021 | 2020 | |
| Sales | $263,000 | $254,000 |
| Cost of Goods Sold | $211,620 | $191,770 |
| Gross Profit | $51,380 | $62,230 |
Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory
In 2020 ending inventory is understated by $7,620, therefore correct cost of goods sold = $199,390-$7620 = $191,770
In 2020 beginning inventory is understated by $7,620, therefore correct cost of goods sold = $204,000+$7,620 = $211,620
Over two years period misstatement in ending inventory will balance themselves out. An understatement of ending inventory will under states gross profit, but next year, since ending inventory becomes beginning inventory, it over states gross profit. So over a two year period, this corrects itselfs.
Wrong GP - Correct GP = Nil = ($59,000+$54,610) - ($51,380+$62,230) = 0
The effect on gross profit over two year period is nil.
| 2021 | 2020 | |
| Gross Profit Margin Before Correction(Gross Profit/Sales*100) | 22.4% | 21.5% |
| Gross Profit Margin After Correction(Gross Profit/Sales*100) | 19.5% | 24.5% |
ekkarill92 answered 1 year agoRelated Solutions
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Question not attempted.
1
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2
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3
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4
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5
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6
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Net income
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A.
Prepare a comparative income statement...
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