Vibrant Company had $1,020,000 of sales in each of Year 1, Year 2, and Year 3, and it purchased merchandise costing $560,000 in each of those years. It also maintained a $320,000 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 $300,000 rather than the correct $320,000. Required: 1. Determine the correct amount of the company’s gross profit in each of Year 1, Year 2, and Year 3. 2. Prepare comparative income statements to show the effect of this error on the company's cost of goods sold and gross profit for each of Year 1, Year 2, and Year 3.

Explanation:

a

                        Year 1                  Year 2       Year 3

Opening inventory    320,000   320,000    320,000

Purchase                    560,000   560,000    560,000

Closing inventory       320,000   320,000    320,000

sales                          1,020,000   1,020,000  1,020,000

Gross profit                460,000     460,000     460,000

b                          

                                       Year 1              Year 2                Year 3

Sales                              1,020,000          1,020,000        1,020,000

Opening inventory           320,000             300,000           320,000

Purchase                          560,000              560,000           560,000

Closing inventory             300,000              320,000            320,000

Gross profit                       440,000               480,000            460,000

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