As the accountant for Synergy Solutions, you are in the process of preparing the income statement for the year ended December 31, 2012. In doing so, you have noticed that merchandise costing $10,500 was sold for $25,000 on December 31. Before the effects of the $25,000 sale were taken into account, the relevant income statement figures were:
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,000
Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
Ending inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
1. Prepare a partial income statement through gross margin under each of the following three assumptions:
a. The sale is recorded in the 2012 accounting record; the inventory is included in the ending physical inventory count.
b. The sale is recorded in 2012; the inventory is not included in Ending inventory.
c. The sale is not recorded in the 2012 accounting records; the merchandise is not included in the Ending inventory count.
2. Under the given circumstances, which of the three assumptions is correct?
3. Which assumption overstates gross margin (and therefore net income)?