3. What effect would the error have had on the income tax expense assuming a 35 percent average rate?
3. What effect would the error have had on the income tax expense assuming a 35 percent average rate?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
[The following information applies to the questions displayed below.]
The income statement for Pruitt Company summarized for a four-year period shows the following:
2016
$ 2,027,000
1,492,000
535,000
473,000
62,000
21,700
40,300
2017
$ 2,451,000
1,616,000
835,000
505,000
330,000
115,500
214,500
2018
$ 2,704,000
000 ,0רר,ן
934,000
519,000
415,000
145,250
2019
$ 2,979,000
2,101,000
878,000
537,000
341,000
119,350
Sales revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Income tax expense (358)
Net income
2$
269,750
221,650
An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $27,000. The
company uses a periodic inventory system.
3. What effect would the error have had on the income tax expense assuming a 35 percent average rate?
Income Tax Expense
2017
2018
Overstatement
Understatement](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8298fc81-e217-4dbd-bb03-53feb7299821%2F304d41fe-4cd0-4def-ab79-31b75aed64bd%2Fshzhl5m_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
The income statement for Pruitt Company summarized for a four-year period shows the following:
2016
$ 2,027,000
1,492,000
535,000
473,000
62,000
21,700
40,300
2017
$ 2,451,000
1,616,000
835,000
505,000
330,000
115,500
214,500
2018
$ 2,704,000
000 ,0רר,ן
934,000
519,000
415,000
145,250
2019
$ 2,979,000
2,101,000
878,000
537,000
341,000
119,350
Sales revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Income tax expense (358)
Net income
2$
269,750
221,650
An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $27,000. The
company uses a periodic inventory system.
3. What effect would the error have had on the income tax expense assuming a 35 percent average rate?
Income Tax Expense
2017
2018
Overstatement
Understatement
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