Virant Company had $850,000 of sales in each of three consecutive years 2014-201

Question

Virant Company had $850,000 of sales in each of three consecutive years 2014-2016, 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 2014 that caused its year-end 2014 inventory to appear on its statements as $230,000 rather than the correct $250,000. Prepare comparative statements as in Exhibit 6.11 to show the effect of this error on the company's cost of goods sold and gross profit for each of those years

Explanation / Answer

Beginning Inventory 250000 Add Purchase 500000 Less Ending Inventory 250000 Cost of goods sold 500000 Sales 850000 Cost of goods sold 500000 Gross profit 350000 2014 Sales 850000 Cost of goods sold( When ending inventory is understated, COGS is overstated and gross profit is understated by the same amountd 520000 Gross Profit 330000 2015 Sales 850000 Cost of goods sold( When Openning inventory is understatedby 20000, COGS is Understate and gross profit is overstated by the same amount 480000 Gross Profit 370000 2015 Sales 850000 Cost of goods sold( When ending inventory is understated, COGS is overstated and gross profit is understated by the same amountd 500000 Gross Profit 350000

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