Louise Company reported the following income statement information for Year 1 and Year 2: The beginning inventory balance for Year 1 is correct. The ending inventory balance for Year 2 is also correct. However, the ending inventory figure for Year 1 was overstated by $20,000. Given this information, the correct gross profit figures for Year 1 and Year 2 would be:

Question

Louise Company reported the following income statement information for Year 1 and Year 2:  The beginning inventory balance for Year 1 is correct. The ending inventory balance for Year 2 is also correct. However, the ending inventory figure for Year 1 was overstated by $20,000. Given this information, the correct gross profit figures for Year 1 and Year 2 would be:

Quizplus · Accepted Answer

To calculate the correct gross profit figures, we need to adjust the cost of goods sold (COGS) figure for Year 1 by deducting the overstated ending inventory of $20,000. This will increase the COGS figure by $20,000, which will in turn decrease the gross profit figure by the same amount. 
Correct COGS for Year 1: $471,000 - $20,000 (overstated ending inventory) = $451,000
Correct Gross Profit for Year 1: $600,000 - $451,000 = $149,000

For Year 2, we can use the figures as given since no adjustments are required.
Correct Gross Profit for Year 2: $496,000 + $34,000 = $530,000
Therefore, the correct answers are: 
Answer: C

Louise Company Reported the Following Income Statement Information for Year