Partial income statements for Murphy & Murphy (M & M) reported the following summarized amounts:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Net Sales $ 60,000 $ 59,000 $ 80,000 $ 68,000

Cost of Goods Sold 24,000 26,550 29,050 26,520

Gross Profit $ 36,000 $ 32,450 $ 50,950 $ 41,480

After these amounts were reported, M & M's accountant determined the inventory at the end of Quarter 2 was understated by $2,950. The inventory balance at the end of the other three quarters was accurately stated.

Required:

Restate the partial income statements to reflect the correct amounts, after fixing the inventory error.

Answer and Explanation:

According to the scenario, The presentation of the given data are as follows:-

Partial Income Statement

Particular Quarter 1 amount ($) Quarter 2 amount ($) Quarter 3 amount ($) Quarter 4 amount ($)

Net Sales 60,000 59,000 80,000 68,000

Cost of sold goods 24,000 23,600 32,000 26,520

Gross Profit 36,000 35,400 48,000 41,480

($32,450 + $2,950) ($50,950 - $2,950)

Quarter 2 was understated by $2,950 at the end of the inventory.

Quarter 2 cost of sold goods

= Cost of sold goods - understated amount

= $26,550 - $2,950

= $23,600

Quarter 3 cost of sold goods

= Cost of sold goods + understated amount

= $29,050 + $2,950

= $32,000