Marrakesh Company reported the following income statement data for the years ended December 31:

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_____________________________________2014                          2013

Sales……………………………………….$500,000………….$500,000

Cost of goods sold………………………….410,000…………...410,000

Gross profit………………………………...$ 90,000…………..$ 90,000

The inventories at January 1, 2013, and December 31, 2014, are correct. However, the ending inventory at December 31, 2013, was understated by $20,000.

Instructions

(a) Prepare the correct income statement up to gross profit for the two years.

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

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