accounting 419013

Boswell Electric prepared the following condensed income statements for two successive years:

	2011		2010
Sales	$	3,000,000	$	2,950,000
Cost of goods sold		1,300,000		1,000,000

Gross profit on sales	$	1,700,000	$	1,950,000
Operating expenses		400,000		450,000

Net income	$	1,300,000	$	1,500,000

At the end of 2010 (right hand column above), the inventory was understated by $27,000, but the error was not discovered until after the accounts had been closed and financial statements prepared at the end of 2011. The balance sheets for the two years showed owner’s equity of $670,000 at the end of 2010 and $665,000 at the end of 2011. (Boswell is organized as a sole proprietorship and does not incur income taxes expense.)

Don't use plagiarized sources. Get Your Custom Essay on

accounting 419013

Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Just from $10/Page

Order Essay

a.	Compute the corrected net income figures for 2010 and 2011. (Omit the “$” sign in your response.)

	2011	2010
Corrected net income	$	$

b.	Compute the gross profit amounts and the gross profit percentages for each year on the basis of corrected data. (Round your percentage answers to 2 decimal places. Omit the “$” and “%” signs in your response.)

	2011	2010
Gross profit amount	$	$
Gross profit percentage	%	%

Which of the following statements is false?

	Owner’s equity at the end of 2011 should be increased by $27,000 to $697,000.
	Owner’s equity at the end of 2011 requires no correction.
	Owner’s equity at the end of 2010 should be increased by $27,000 to $697,000.