PB7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory Errors
ID: 2515482 • Letter: P
Question
PB7-5 (Supplement 7B) Analyzing and Interpreting the Effects of Inventory Errors [LO 7-S2] Spears & Cantrell announced inventory had been overstated by S50 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. 01 03 Q2 $4,000 $4,250 $5,000 Net Sales Cost of Goods Sold 2,880 3,010 3,650 Gross Profit $1,120 $1,240 $1,350Explanation / Answer
Answer 1
Note :
Answer 2 a
Gross Profit % = Gross Profit / Net sales
Answer 2 c Yes
Explanation : Since in the question no information about change in selling per unit or change in COGS per unit is given. Thus that means both selling per unit & change in COGS per unit remains same for all the quarters. Since per unit price & cost are constant the gross profit margin should also be same for all the 3 quarters .
As we can see that before correction gross profit % is not same for the 3 quarters but after correction the gross profit % is same for all the 3 quarters .ie 28 % .
Spears & Cantrell Company Income Statements (corrected) Q1 ($) Q2 ($) Q3 ($) Net Sales 4,000 4,250 5,000 Cost of goods sold 2,880 [3,010 + 50] = 3,060 [3,650 - 50] = 3,600 Gross profit 1,120 1,190 1,400Related Questions
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