Abco Company had $1,100,000 of sales in each of three consecutive years 2008–2010, and it purchased merchandise costing $700,000 in each of those years. It also maintained a $280,000 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 2008 that caused its year-end 2008 inventory to appear on its statements as $262,000 rather than the correct $280,000.
1. Determine the correct amount of the company’s gross profit in each of the years 2008–2010.
2. Prepare comparative income statements as in Exhibit 5.11 to show the effect of this error on the company’s cost of goods sold and gross profit for each of the years 2008–2010.