Analyzing and Interpreting the Effects of Inventory Errors

Partial income statements for Sherwood Company summarized for a four-year period show the following 2012 2013 2014 2015 Net Sales Cost of Goods Sold $1,100,000 $1,500,000 $1,600,000 $2,100,000 869,000 1,170,000 1,280,000 1,659,000 Gross Profit $ 231,000 $ 330,000 $ 320,000 $ 441,000 An audit revealed that in determining these amounts, the ending inventory for 2013 was overstated by $11,000. The inventory balance on December 31, 2014, was accurately stated. The company uses a periodic inventory system. Required 1. Restate the partial income statements to reflect the correct amounts, after fixing the inventory error SHERWOOD COMPANY Partial Income Statements (Corrected) 2012 2013 2014 2015 Net Sales Cost of Goods Sold Gross Profit 2-a. Compute the gross profit percentage for each year (a) before the correction and (b) after the correction. (Round your answers to the nearest whole percent.) 2012 2013 2014 2015 Before Correction After Correction 2-b. Does the pattern of gross profit percentages lend confidence to your corrected amounts? O Yes 0