P7-5 Analyzing and Interpreting the Effects of Inventory Errors LO7-5

The statements of earnings for Pruitt Company summarized for a four-year period show the following (amounts in thousands of dollars):

	2021			2020			2019			2018
Sales revenue	$	2,825		$	3,250		$	3,500		$	3,775
Cost of sales		1,905			2,027			2,182			2,513
Gross profit		920			1,223			1,318			1,262
Operating expenses		570			593			618			622
Pretax earnings		350			630			700			640
Income tax expense (40%)		140			252			280			256
Net earnings	$	210		$	378		$	420		$	384

An audit revealed that in determining these amounts, the ending inventory for 2019 was understated by $38.

Required:

1. Revise these statements of earnings to reflect the correct amounts. (Do not round intermediate calculations. Round the final answers to the nearest dollar amount.)

2. Did the error affect the cumulative net earnings for the four-year period?

multiple choice

• Not affected

• Affected

3. What effect did the error have on the income tax expense for 2019 and 2020? (Do not round intermediate calculations. Round the final answers to the nearest dollar amount.)