Financial Accounting
9th Edition
ISBN: 9781259222139
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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Chapter 7, Problem 7.9P
1.
To determine
Recast the income statements to reflect the correct amounts, taking the inventory error into consideration.
2.
To determine
Compute the gross profit percentage for each year before and after the correction.
3.
To determine
Compute the effect that an error would have on the income tax expenses, assuming a 30% average rate.
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Required information
P7-6 (Algo) Analyzing and Interpreting the Effects of Inventory Errors LO7-5
[The following information applies to the questions displayed below.]
The income statement for Pruitt Company summarized for a four-year period shows the following:
Sales revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Income tax expense (30%)
Net income
P7-6 Part 1
2016
2017
$2,041,000 $2,469,000
1,618,000
1,492,000
549,000
484,000
65,000
19,500
$45,500
Sales revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Income tax expense (30%)
Net income
851,000
496,000
355,000
106,500
$248,500
496,000
334,000
2018
$2,712,000
1,781,000
100,200
233,800
931,000
522,000
409,000
122,700
$286,300
An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $21,000. The
company uses a periodic inventory system.
Answer is complete but not entirely correct.
PRUITT COMPANY
Income Statement
For the Four-Year Period
2016
2017
$ 2,041,000…
please answer do not image.
Company's annual net income for the period 2017-2021 follows:
Net income (loss)
P 412,500
935,000
Year
2017
2018
1,773,750
( 275,000)
687,500
2019
2020
2021
A review of the company's records reveals the following inventory errors:
P 8,250 understatement, end of year
16,500 overstatement, end of year
12,375 understatement, end of year
2017
2018
2019
2020
30,250 overstatement, end of year
Questions:
What is the adjusted net income (loss) in 2017?
What is the adjusted net income (loss) in 2018?
What is the adjusted net income (loss) in 2019?
What is the adjusted net income (loss) in 2020?
What is the adjusted net income (loss) in 2021?
Chapter 7 Solutions
Financial Accounting
Ch. 7 - Why is inventory an important item to both...Ch. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - Prob. 4QCh. 7 - Prob. 5QCh. 7 - The chapter discussed tour inventory costing...Ch. 7 - Prob. 7QCh. 7 - Contrast the effects of LIFO versus FIFO on...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Prob. 10Q
Ch. 7 - Explain briefly the application of the LCM concept...Ch. 7 - Prob. 12QCh. 7 - Consider the following information: ending...Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a component of the...Ch. 7 - Consider the following information: beginning...Ch. 7 - Consider the following information: beginning...Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - If the ending balance in accounts payable...Ch. 7 - Which of the following regarding the lower of cost...Ch. 7 - Which inventory method provides a better matching...Ch. 7 - Which of the following is false regarding a...Ch. 7 - Prob. 7.1MECh. 7 - Recording the Cost of Purchases for a Merchandiser...Ch. 7 - Identifying the Cost of Inventories for a...Ch. 7 - Inferring Purchases Using the Cost of Goods Sold...Ch. 7 - Prob. 7.5MECh. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Reporting Inventory under Lower of Cost or Market...Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Prob. 7.9MECh. 7 - Prob. 7.1ECh. 7 - Inferring Missing Amounts Based on Income...Ch. 7 - Prob. 7.3ECh. 7 - Inferring Merchandise Purchases Abercrombie and...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Prob. 7.11ECh. 7 - Reporting Inventory at Lower of Cost or Market...Ch. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - (Chapter Supplement A) Analyzing the Effects of a...Ch. 7 - (Chapter Supplement B) FIFO and LIFO Cost of Goods...Ch. 7 - (Chapter Supplement C) Recording Sales and...Ch. 7 - Analyzing Items to Be Included in Inventory Travis...Ch. 7 - Prob. 7.2PCh. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Prob. 7.4PCh. 7 - Evaluating the LIFO and FIFO Choice When Costs Are...Ch. 7 - Evaluating the Income Statement and Cash Flow...Ch. 7 - Evaluating the Effects of Manufacturing Changes on...Ch. 7 - Evaluating the Choice between LIFO and FIFO Based...Ch. 7 - Prob. 7.9PCh. 7 - (Chapter Supplement A) Analyzing LIFO and FIFO...Ch. 7 - Prob. 7.1APCh. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Evaluating the UFO and FIFO Choice When Costs Are...Ch. 7 - Prob. 7.4APCh. 7 - Prob. 7.1CONCh. 7 - Finding Financial Information Refer to the...Ch. 7 - Finding Financial Information Refer to the...Ch. 7 - Comparing Companies within an Industry Refer to...Ch. 7 - Prob. 7.4CPCh. 7 - Using Financial Reports: Interpreting Effects of...Ch. 7 - Making a Decision as a Financial Analyst: Analysis...Ch. 7 - Evaluating an Ethical Dilemma: Earnings, Inventory...
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