The Income statement for Pruitt Company summarized for a four-year period shows the following:
|Cost of goods sold||1,501,000||1,617,000||1,778,000||2,100,000|
|Income tax expense (30%)||15,900||107,700||120,300||102,300|
An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $11,000. The company uses a periodic inventory system.
1. Prepare the income statements to reflect the correct amounts, taking into consideration the inventory error.
|PRUTT COMPANY INCOME STATEMENT FOR THE FOUR YEAR PERIOD|
|Cost of goods sold|
|Income tax expense (30%)|
When the ending inventory amount in the balance sheet is either overstated or understated, the error will have an impact on the profit of the year in which it occurs and the following year, because ending inventory rolls forward into beginning inventory in the cost of goods sold expense calculation.
Answer and Explanation: 1
Income Statement for the years ended ..._
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fromChapter 6 / Lesson 13
For companies, a miscount of inventory can be a serious issue. In this lesson we'll look at the effects of inventory errors on companies, both with respect to profits and how the error should be recorded.