Vibrant Company had $850,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $500,000 in each of those years. It also maintained a $250,000 physical inventory from the beginning to the end of that three-year period. In accounting for inventory, it made an error at the end of Year 1 that caused its Year 1 ending inventory to appear on its statements as $230,000 rather than the correct $250,000. Required: 1. Determine the correct amount of the company's gross profit in each of Year 1, Year 2, and Year 3.

The correct amount of the company's gross profit in each of Year 1, Year 2, and Year 3 is $350,000.

Explanation:

Gross profit is the earning of the company from the direct sales of the products or services. It is calculated by deducting the cost of goods sold from sales.

Cost of Goods sols is the production or purchase cost of an item or service sold during the period. Cost of Goods sold can be calculated by adding purchases for the period in beginning inventory and deducting the closing inventory.

Correct Gross Profit

Sales                                           $850,000

less: Cost of Goods Sold

Beginning Inventory $250,000

+ Purchases              $500,000

- Ending Inventory    $250,000

                                                   $500,000

Gross Profit                                $350,000

As each years values of sales, purchases and beginning and Ending Inventory are same the gross profit will also be the same.

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