Marrakesh Company reported the following income statement data for the years ended December 31:
_____________________ 2017 __________ 2016
Sales ...................... $550,000 .......... $500,000
Cost of goods sold ....... 410,000 ............ 410,000
Gross profit ............. $ 90,000 ........... $ 90,000
The inventories at January 1, 2016, and December 31, 2017, are correct. However, the ending inventory at December 31, 2016, 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?