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Vibrant Company had $920,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $510,000 in each of those years. It also maintained a $220,000 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 1 that caused its Year 1 ending inventory to appear on its statements as $200,000 rather than the correct $220,000.

Vibrant Company had $920,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $510,000 in each of those years. It also maint class=
Vibrant Company had $920,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $510,000 in each of those years. It also maint class=

Answer :

anthougo

1. The preparation of the correct income statement for Vibrant Company for each of the three years is as follows:

Vibrant Company

Income Statement

For the years ended December 31, Year 1, Year 2, and Year 3

                                               Year 1        Year 2       Year 3           Total

Sales revenue                  $920,000   $920,000   $920,000  $2,760,000

Cost of goods sold:

Beginning inventory        $220,000   $220,000  $220,000     $220,000

Purchases                           510,000      510,000      510,000     1,530,000

Goods available for sale $730,000   $730,000   $730,000   $1,750,000

Less Ending inventory    $220,000  $220,000   $220,000     $220,000

Cost of goods sold            510,000      510,000      510,000     1,530,000

Gross profit                      $410,000    $410,000   $410,000    $1,230,000

2. The preparation of the income statements showing the effects of the error for Vibrant Company for each of the three years is as follows:

Vibrant Company

Income Statement

For the years ended December 31, Year 1, Year 2, and Year 3

                                               Year 1        Year 2       Year 3           Total

Sales revenue                  $920,000   $920,000   $920,000  $2,760,000

Cost of goods sold:

Beginning inventory        $220,000   $200,000  $220,000     $220,000

Purchases                           510,000      510,000      510,000     1,530,000

Goods available for sale $730,000    $710,000   $730,000   $1,750,000

Less Ending inventory    $200,000  $220,000   $220,000     $220,000

Cost of goods sold            530,000     490,000      510,000     1,530,000

Gross profit                     $390,000   $430,000   $410,000   $1,230,000

Thus, the misstatement of the ending inventory as $200,000 instead of $220,000 caused the gross profit for year 1 and year 2 to be correspondingly misstated by $20,000, respectively.

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