Problem 6-10B Analysis of inventory errors

Incorrect Income Statement Information for Years Ended December 31

Corrected Income Statement Information for Years Ended December 31

	2017	%	2018	%	2017	%	2018	%
Sales	671,000	100	835,000	100
Cost of goods sold	402,600	60	417,500	50
Gross profit	268,400	40	417,500	50

In comparing income statement information for the years ended December 31, 2017, and 2018, the owner noticed an increase in the gross profit. He was puzzled because he knew that inventory costs were increasing.

A detailed review of the records showed the following:

1. Goods with a cost of $37,500 were on consignment at another location. Through an error, they were not included in the inventory of December 31, 2017.

2. $16,000 of merchandise inventory purchased on December 25, 2018, was shipped FOB Shipping Point and received on January 6, 2019. It was not included in inventory on December 31, 2018, in error.

3. While performing the physical inventory count on December 31, 2018, a calculation error was discovered that caused inventory on hand to be overstated by $24,500.

Required

1. Using the information provided, complete the schedule showing the corrected income statement information (round percentages to the nearest whole number).

2. Does the new gross profit information reflect the owners knowledge of increasing inventory costs?