Analyzing and Interpreting the Effects of Inventory Errors The income statement for Pruitt Company summarized for a

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Analyzing and Interpreting the Effects of Inventory Errors
The income statement for Pruitt Company summarized for a four-year period shows the following:

2011 2013 2012 2014 $2,025,000 1,505,000 520,000 490,000 30,000 $2,700,000 1,782,000 Sales revenue Cost of goods sold Gr

An audit revealed that in determining these amounts, the ending inventory for 2012 was overstated by $18,000. The company uses a periodic inventory system.
Required:
1. Recast the income statements to reflect the correct amounts, taking into consideration the inventory error.
2. Compute the gross profit percentage for each year
(a) Before the correction and
(b) After the correction.
3. What effect would the error have had on the income tax expense assuming a 30 percent averagerate?

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
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Related Book For  book-img-for-question

Fundamentals Of Financial Accounting

ISBN: 9780073527109

3rd Edition

Authors: Fred Phillips, Robert Libby, Patricia A Libby

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