Homework Answers
Required 1: The understated income in first
quarter got overstated in the next month, thus total income from
operations for the two quarters combined will have No
effect.
Required 2: The first quarter income is understated by $700 and the second quarter income is overstated by $700.
Required 3: Corrected income statement
| Existing | Corrected | |||
| First quarter | Second quarter | First quarter | Second quarter | |
| Sales revenue | $19,000 | $22,800 | $19,000 | $22,800 |
| Cost of goods sold: | ||||
| Beginning inventory | $3,800 | $4,800 | $3,800 | $5,500 |
| Purchases | $7,800 | $12,800 | $7,800 | $12,800 |
| Goods available for sale | $11,600 | $17,600 | $11,600 | $18,300 |
| Ending inventory | ($4,800) | ($9,800) | ($5,500) | ($9,800) |
| Cost of goods sold | $6,800 | $7,800 | $6,100 | $8,500 |
| Gross profit | $12,200 | $15,000 | $12,900 | $14,300 |
| Operating expenses | ($5,800) | ($6,800) | ($5,800) | ($6,800) |
| Income from operations | $6,400 | $8,200 | $7,100 | $7,500 |
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At the end of the second quarter of 20X1, Malta Corporation
assembled the following information:
The first quarter resulted in a $106,000 loss before taxes.
During the second quarter, sales were $1,216,000; purchases were
$666,000; and operating expenses were $336,000.
Cost of goods sold is determined using the FIFO method. The
inventory at the end of the first quarter was reduced by $20,000 to
a lower-of-cost-or-market figure of $94,000. During the second
quarter, replacement costs recovered, and by the end...
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