The income statement for Pruitt Company summarized for a four-year period shows
ID: 2424310 • Letter: T
Question
The income statement for Pruitt Company summarized for a four-year period shows the following:
2014 2015 2016 2017 Sales revenue 2,025,000 2,450,000 2,700,000 2,975,000 Cost of goods sold 1,505,000 1,627,000 1,782,000 2,113,000 Gross profit 520,000 823,000 918,000 862,000 Expenses 490,000 513,000 538,000 542,000 Pretax income 30,000 310,000 380,000 320,000 Income tax expense (30%) 9,000 93,000 114,000 96,000 Net income 21,000 217,000 266,000 224,000 An audit revealed that in determining these amounts, the ending inventory for 2015 was overstated by $18,000. The company uses a periodic inventory system. Required: 1. Recast the income statements to reflect the correct amounts, taking into consideration the inventory error. 2. Compute the gross profit percentage for each year (a) before the correction and (b) after the correction. 3. What effect would the error have had on the income tax expense assuming a 30 percent average rate?Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
Income tax expenses decreases by $5,400 for 2015 and increase by $5,400 for 2016.
Corrected income statements - Pruitt Company Particulars 2014 2015 2016 2017 Sales revenue $2,025,000.00 $2,450,000.00 $2,700,000.00 $2,975,000.00 Cost of goods sold $1,505,000.00 $1,645,000.00 $1,764,000.00 $2,113,000.00 Gross Profit $520,000.00 $805,000.00 $936,000.00 $862,000.00 Expenses $490,000.00 $513,000.00 $538,000.00 $542,000.00 Pre tax income $30,000.00 $292,000.00 $398,000.00 $320,000.00 Income tax expense (30%) $9,000.00 $87,600.00 $119,400.00 $96,000.00 Net Income $21,000.00 $204,400.00 $278,600.00 $224,000.00Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.