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Vibrant Company had $1
Vibrant Company had $1.080,000 of sales in each of three consecutive years 2016-2018, and it purchased merchandise costing $590,000 in each of those years. It also maintained a $380,000 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 $360,000 rather than the correct $380,000. 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. Complete this questions by entering your answers in the below tabs. Required 1 Required 2 Determine the correct amount of the company's gross profit in each of the years 2016-2018. VIBRANT COMPANY Comparative Income Statements 2017 2016 2018 3-year total $ 0 Cost of goods sold 0 0
each of the years 2016-2018. Complete this questions by entering your answers in the below tabs. Required 1 Required 2 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 $ 0 Cost of goods sold 0 0 0 0 Cost of goods sold Gross profit 0 0 0 $ $ 0 $ 0 0 $ 0 Required Required 2 >
Pre-Built Problems A Saved each of the years 2016-2018. Complete this questions by entering your answers in the below tabs. Required 1 Required 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. VIBRANT COMPANY Comparative Income Statements 2016 2017 2018 3-year total 0 Cost of goods sold 0 0 0 Cost of goods sold Gross profit 0 0 0 0 0 $ $ 0 $ 0 $ 0
Expert Solution
Understating or overstating of closing inventory will affect the gross profit of a company in two consecutive years, because, the closing inventory of one year will be the opening inventory of the next year. Here, the ending inventory is understated ie, shown as $360,000 instead of $380,000. Therefore, the cost of goods sold will appear overstated and it will cause gross profit to be understated by $20,000.
In the next year, opening inventory would be understated and thereby the cost of goods sold appears understated. It will cause gross profit to be overstated by $20,000.
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