Question

Vibrant Company had $850,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $500,000 in each of those years. It also maintained a $250,000 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 2016 that caused its year-end 2016 inventory to appear on its statements as $230,000 rather than the correct $250,000. Required: 1. Determine the correct amount of the company's gross profit in each of the years 2016−2018. 2. Prepare comparative income statements to show the effect of this error on the company's cost of goods sold and gross profit for each of the years 2016−2018.

Answer 1

Answer:

Please, for answer see attached file.

Explanation:

The difference will be between the gross profit in the years 2016 and 2017, because of the error. This is because the error will cause a difference in the cost of sold goods.  

In the year 2018, there will be no difference because the beginning inventory and final inventory are right.

But, for the three-year period, there will no be a difference in the total, because both, beginning and final inventory are correctly registered.