Hull Company reported the following income statement information for 2015: The beginning inventory balance for Year 1 is correct.However,the ending inventory figure for Year 1 was overstated by $20,000.Given this information,the correct gross profit figure for 2015 would be:
A)$149,000.
B)$169,000.
C)$129,000.
D)$142,000.
E)$112,000.

Question

Hull Company reported the following income statement information for 2015:  The beginning inventory balance for Year 1 is correct.However,the ending inventory figure for Year 1 was overstated by $20,000.Given this information,the correct gross profit figure for 2015 would be:
A)$149,000. 
B)$169,000. 
C)$129,000. 
D)$142,000. 
E)$112,000.

Quizplus · Accepted Answer

Gross profit equals net sales minus cost of goods sold. Cost of goods sold equals beginning inventory plus purchases minus ending inventory. Since the ending inventory was overstated by $20,000, cost of goods sold will be understated by $20,000. Thus, gross profit will be overstated by $20,000 as well. To adjust for this, we need to reduce the reported gross profit by $20,000, giving us a correct figure of $129,000 (reported gross profit of $149,000 minus adjustment of $20,000).

Hull Company Reported the Following Income Statement Information for 2015