Question

Vibrant Company had $930,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $515,000 in each of those years. It also maintained a $230,000 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 $210,000 rather than the correct $230,000.

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

1.

	2016	2017	2018
Sales	930,000	930,000	930,000
Cost of Goods Sold
Begenning Inventory	230,000	230,000	230,000
Add: Purchases	515,000	515,000	515,000
Cost of goods Availabe for Sale	745,000	745,000	745,000
Ending Inventory	230,000	230,000	230,000
Cost of Goods Sold	515,000	515,000	515,000
Gross Profit	415,000	415,000	415,000

Income Statement
		2016		2017		2018
Sales		930,000		930,000		930,000
Less: Cost of goods Sold
Beginning Inventory	230,000		210,000		250,000
Add: Purchases	515,000		515,000		515,000
Cost of goods Availabe for Sale	745,000		725,000		765,000
Ending Inventory	210,000		250,000		250,000
Cost of goods Sold		535,000		475,000		515,000
Gross profit		395,000		455,000		415,000

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