Branson Electric prepared the following condensed income statements for two succ
ID: 2561615 • Letter: B
Question
Branson Electric prepared the following condensed income statements for two successive years 2018 2017 Sales Cost of goods sold Gross profit on sales Operating expenses Net income $2,000,000 $ 700,000 $ 300,000 $ 1,950,000 800,000 $ 1,150,000 300,000 $ 850,000 1,300,000 400,000 At the end of 2017 (right-hand column), the inventory was understated by $28,000, but the error was not discovered until after the accounts had been closed and financial statements prepared at the end of 2018. The balance sheets for the two years showed owner's equity of $580,000 at the end of 2017 and $555,000 at the end of 2018. (Branson is organized as a sole proprietorship and does not incur income taxes expense.) a. Compute the corrected net income figures for 2017 and 2018 b. Compute the gross profit amounts and the gross profit percentages for each year on the basis of corrected data. (Round "Gross profit percentage" to 2 decimal places (i.e. .1234 should be entered as 12.34) 2018 2017 a. Corrected net income b. Gross profit amount Gross profit percentageExplanation / Answer
ReqA: 2018 2017 Gross Profit 700,000 1,150,000 Add: Closing stock Understated of both years 28000 28000 Less: Opening stock of 2018 understated -28000 (As closing stock of 2017 is opening of 2018) Corrected Gross Profit 700,000 1,178,000 Less: Operating expense 400,000 300,000 Corrected Net Income 300,000 878,000 ReqB: 2018 2017 Corrected Net Income 300,000 878,000 Corrected gross profit 700,000 1,178,000 Gross profit % 35% 60.41% (Gross Profit/ Sales*100) (700000*2000,000*100) (1178,000/1950000*100)