Aruba Inc. reported the following partial income statement data for the years ended December 31, 2015, and 2014:

_______________________2015 _____________2014

Sales ........................ $265,000 .............. $250,000

Cost of goods sold ......... 205,000 ............... 194,000

Gross profit ................... 60,000 ................. 56,000

Merchandise inventory was reported in the current financial position at $44,000, $52,000, and $49,000 at the end of 2013, 2014, and 2015, respectively. The ending inventory amounts for 2013 and 2015 are correct. However, the ending inventory at December 31, 2014, is understated by $8,000.

Instructions

(a) Prepare correct income statements for 2014 and 2015 through to gross profit.

(b) What is the cumulative effect of the inventory error on total gross profit for these two years?

(c) Calculate the gross profit margin for each of these two years, before and after the correction.