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Gross Company

Income Statements

For Years Ended December 31, 2019 and 2018

2019 2018

Net sales L.E 950000 L.E 900000

cost of cost merchandise sold :

Inventory Jan 1 L.E 85000 L.E 80000

cost of cost merchandise

purchased :

670000 640000

Merchandise available for sale L.E 755000 L.E 720000

Less inventory, December 31 75000 85000

Cost of merchandised sold 680000 635000

Gross profit L.E 270000 L.E 265000

Operating expenses 190000 185000

Net income L.E 80000 L.E 80000

In late 2020, it was discovered the merchandise inventory

has been overstated by L.E 10,000 at December 31, 2018,

and understated by L.E 10,000 at December 31, 2019.

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Instructions:

1. Prepare corrected income statements for each of the two

years ended December 31, 2018 and 2019.

2. If the accounts are not corrected, (a) will the net income

for the year ended December 31, 2020, be overstated or

understated, and in what amount; (b) what items on the

balance sheet at December 31, 2020, will be overstated

or understated, and in what amounts(s)?

Q3: The units of an item available for sale during· the year

was as follows:

Jan. 1 Inventory 15 units at L.E 45

Apr. 4 Purchase 30 units at L.E 40

July 20 Purchase 40 units at L.E 42

Sep.30 Purchase 30 units at L.E 41

There are 45 units of the item in the physical

inventory at December 31. The periodic inventory system

is used. Determined the inventory cost by the:

(a) FIFO (b) LIFO (c) Average cost.

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Q4: Beginning inventory, purchases, and sales data for

Commodity E29 are as follows:

Jan. 1 Inventory 15 units at L.E 45

6 Sale 5 units

9 Purchase 15 units at L.E 47

15 Sale 8 units

22 Sale units
30 Purchase 10 units at L.E 48

The enterprise maintains a perpetual inventory

system, costing by the first-in, first-out method. Determine

the cost of the merchandise sold in each sale and the

inventory balance after each sale, presenting the data in the

form illustrated in Exhibit 4.