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PA7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory Errors [LO 7-S2] Partial income statements for Sherwood Company summarized for a four-year period show
PA7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory Errors [LO 7-S2]
Partial income statements for Sherwood Company summarized for a four-year period show the following:
2015 | 2016 | 2017 | 2018 | ||||||||||
Net Sales | $ | 2,400,000 | $ | 2,800,000 | $ | 2,900,000 | $ | 3,400,000 | |||||
Cost of Goods Sold | 1,584,000 | 1,820,000 | 1,943,000 | 2,244,000 | |||||||||
Gross Profit | $ | 816,000 | $ | 980,000 | $ | 957,000 | $ | 1,156,000 | |||||
An audit revealed that in determining these amounts, the ending inventory for 2016 was overstated by $24,000. The inventory balance on December 31, 2017, 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.
- 2-a. Compute the gross profit percentage for each year (a) before the correction and (b) after the correction.
- 2-b. Does the pattern of gross profit percentages lend confidence to your corrected amounts?
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