PROBLEM - INENTORY Boswell Electric prepared the following condensedincome state
ID: 2502178 • Letter: P
Question
PROBLEM - INENTORY
Boswell Electric prepared the following condensedincome statements for two successive years:
Particulars
2008
(Rs.)
2007
(Rs.)
Sales
Cost of goods sold
Gross profit on sales
Operating expenses
Net income
200,000
150,000
50,000
30,000
20,000
160,000
100,000
60,000
20,000
40,000
At The end of the year 2007, the inventory wasunderstated by Rs. 10,000, but the error was not discovered untilafter the accounts had been closed and financial statementsprepared at the end of the year 2008. The balance sheets for thetwo years showed owner’s equity of Rs. 50,000 at the end ofthe year 2007 and Rs. 60,000 at the end of the year 2008. (Boswellis organized as a sole-proprietorship and does not incur incometaxes expense.)
Required:
Particulars
2008
(Rs.)
2007
(Rs.)
Sales
Cost of goods sold
Gross profit on sales
Operating expenses
Net income
200,000
150,000
50,000
30,000
20,000
160,000
100,000
60,000
20,000
40,000
Explanation / Answer
Corrected Income Statement
2008
2007
Sales
200,000.00
160,000.00
Cost of Goods Sold
150,000.00
100,000.00
Gross Profit on Sales
50,000.00
60,000.00
Operating Expenses
30,000.00
20,000.00
Net Income
20,000.00
40,000.00
Increase in Net income due
10,000.00
to understatement of closing
inventory
Decrease in Net income due
(10,000.00)
to understatement of opening
inventory
CorrectedIncome
10,000.00
50,000.00
Corrected Income Statement
2008
2007
Sales
200,000.00
160,000.00
Cost of Goods Sold
150,000.00
100,000.00
Gross Profit on Sales
50,000.00
60,000.00
Operating Expenses
30,000.00
20,000.00
Net Income
20,000.00
40,000.00
Increase in Net income due
10,000.00
to understatement of closing
inventory
Decrease in Net income due
(10,000.00)
to understatement of opening
inventory
CorrectedIncome
10,000.00
50,000.00
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