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

Quizplus · Accepted Answer

Gross profit is calculated by subtracting cost of goods sold (COGS) from net sales. COGS is calculated as beginning inventory plus purchases minus ending inventory. If the ending inventory figure was overstated by $20,000, then COGS was understated by the same amount. To get the correct gross profit, we need to subtract the correct COGS from net sales. Since COGS was understated by $20,000, we need to add that amount back to the reported COGS figure. Thus, correct COGS is $430,000 ($450,000 - $20,000), and correct gross profit is $129,000 ($559,000 - $430,000). Therefore, the correct answer is C.

Hull Company Reported the Following Income Statement Information for the Current