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The Income statement for Pruitt Company summarized for a four-year period shows the following: An...

Question:

The Income statement for Pruitt Company summarized for a four-year period shows the following:

2016 2017 2018 2019
Sales Revenue $2,044,000 $2,470,000 $2,714,000 $2,981,000
Cost of goods sold 1,501,000 1,617,000 1,778,000 2,100,000
Gross profit 543,000 853,000 936,000 881,000
Expenses 4980,000 494,000 535,000 540,000
Pretax income 53,000 359,000 401,000 341,000
Income tax expense (30%) 15,900 107,700 120,300 102,300
Net income $37,100 $251,300 $251,300 $238,700

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.

Required:

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
2016 2017 2018 2019
Sales Revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Income tax expense (30%)
Net income

Inventory Errors:

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

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Pruitt Company

Income Statement for the years ended ..._

2016 2017 2018 2019
Sales revenue $2,044,000 $2,470,000 $2,714,000 $2,981,000
Cost of...

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The Effects of Inventory Errors

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Chapter 6 / Lesson 13
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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.


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