Vibrant Company had $980,000 of sales in each of three consecutive years 2016–2018,

(1)$440,000 (2) due to this error in inventory it had an effect on both years 2016 and 2017 because closing inventory of previous year will be opening inventory of the subsequent year.

Explanation:

Solution

Given that:

(1) The correct amount of gross profit in each of the years 2016-18  is given as follows:

The Gross profit = Sales- purchases +closing inventory-Inventory at beginning

The Gross profit = $980,000-540,000+280,000-280,000 =$440,000

(2)The Comparative income statement to show the effect of error in cost of goods sold of vibrant company is shown below:

Particular2016      2017              2018          3 years total

Sales          $980,000  $980,000  $980,000    $2,940,000

Cost of goods sold

Purchases    $540,000 $540,000   $540,000   $1,620,000

add :Beginning inventory:

                     $280,000 $260,000    $280,000    280,000

Less: Closing inventory:

                     ($260,000) ($280,000)  (280,000)  (280,000)

Total Cost of goods sold:

                      $560,000  $520,000    $540,000   $540,000

Gross profit    $420,000  $460,000    $440,000   $440,000

For this error in inventory it had an effect on both years 2016 and 2017 because closing inventory of previous year will be opening inventory of the subsequent year.