Aruba Inc. reported the following partial income statement data for the years ended December 31, 2018, and 2017:
____________________2018_________2017
Sales............................$265,000..........$250,000
Cost of goods sold........205,000............194,000
Gross profit.....................60,000..............56,000
Inventory was reported in the current financial position at $44,000, $52,000, and $49,000 at the end of 2016, 2017, and 2018, respectively. The ending inventory amounts for 2016 and 2018 are correct. However, the ending inventory at December 31, 2017, is understated by $8,000.
Instructions
(a) Prepare correct income statements for 2017 and 2018 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.