PB7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory ErrosL

Question

PB7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory ErrosLO 7-S2] Spears & Cantrell announced inventory had been overstated by $40 at the end of its second quarter. The error wasn't discovered and corrected in the company's periodic inventory system until after the end of the third quarter. The following table shows the amounts that were originally reported by the company. Q3 Net Sales Cost of Goods Sold S3,500 $4,000 4,500 2,920 2,590 3,370 Gross Profit S 910 $1,080 1,130 Required: 1. Restate the income statements to reflect the correct amounts, after fixing the inventory error. SPEARS & CANTRELL COM Income Statements (Corrected) Q1 02 Q3 Net Sales Cost of Goods Sold Gross Profit 2-a. Compute the gross profit percentage for each quarter (a) before the correction and (b) after the correction. (Round your answers to the nearest whole percent.) Q1 Q3 Before Correction After Correction 2-b. Do the results lend confidence to your corrected amounts? Yes O No

Explanation / Answer

Req 1: Q-1 Q-2 Q-3 Net sales 3500 4000 4500 Less: COGS 2590 2960 3330 Gross Profit 910 1040 1170 Req 2: Q1 Q2 Q3 Gross Profit % before Correction 26% 27.00% 25.00% After correction 26% 26.00% 26.00% Yes, it lend confidence to corrected amount.

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