Vibrant Company had $980,000 of sales in each of Year 1, Year 2,and Year 3, and it purchased merchandise costing $540,000 in eachof those years. It also maintained a $280,000 physical inventoryfrom the beginning to the end of that three-year period. Inaccounting for inventory, it made an error at the end of Year 1that caused its Year 1 ending inventory to appear on its statementsas $260,000 rather than the correct $280,000.
Required:
1. Determine the correct amount of the company’s grossprofit in each of Year 1, Year 2, and Year 3.
2. Prepare comparative income statements to showthe effect of this error on the company's cost of goods sold andgross profit for each of Year 1, Year 2, and Year 3.
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| | VIBRANT COMPANY | | Comparative Income Statements | | Year 1 | Year 2 | Year 3 | 3-year total | | | | | | | | $0 | | Cost of goods sold | | | | | | | | | | | | | | | | | | | | | | | | | 0 | | 0 | | 0 | | | | | | | | | | | | Cost of goods sold | | 0 | | 0 | | 0 | 0 | | Gross profit | | $0 | | $0 | | $0 | $ |
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