Large Accounting HW

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                                                                 Problem 07-09

Requirement 1:
                                 SHERWOOD COMPANY
                               Income Statement Corrected

                                     2009            2010            2011          2012
Sales revenue                  $    2,025,000   $   2,450,000    $ 2,700,000   $ 2,975,000
Cost of goods sold                  1,505,000       1,649,000      1,760,000
Gross profit                          520,000         801,000        940,000
Expenses                              490,000         513,000        538,000
Pretax income                          30,000         288,000        402,000
Income tax expense (30%)                9,000          86,400        120,600
Net income                     $       21,000   $     201,600    $ 281,400
                                    Correct!        Correct!       Correct!


Requirement 2:
                                   SHERWOOD COMPANY
                                      Gross Profit Ratio

                                     2009           2010            2011          2012
Before correction

After correction


Requirement 3:
                           SHERWOOD COMPANY
                    Effect of Error on Income Tax Expense

                                                    2010            2011
Income tax expense reported
Correct income tax expense
Income tax expense overstatement
  (understatement)
Given Data P07-09:

                            SHERWOOD COMPANY
                         Income Statement - Uncorrected

                                2009             2010          2011          2012
Sales revenue               $ 2,025,000      $ 2,450,000   $ 2,700,000   $ 2,975,000
Cost of goods sold            1,505,000        1,627,000     1,782,000     2,113,000
Gross margin                    520,000          823,000       918,000       862,000
Expenses                        490,000          513,000       538,000       542,000
Pretax income                    30,000          310,000       380,000       320,000
Income tax expense (30%)          9,000           93,000       114,000        96,000
Net Income                      $21,000         $217,000      $266,000      $224,000

Overstatement of inventory - Dec. 31, 2010                               $   22,000

				
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