Smart Watch Company reported the following income statement data for a 2-year period.

Smart uses a periodic inventory system. The inventories at January 1, 2016, and December 31, 2017, are correct. However, the ending inventory at December 31, 2016, was overstated $6,000.

Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Smart Watch Company what has happened, i.e., the nature of the error and its effect on the financialstatements.

Transcribed Image Text:

2016 2017 Sales revenue Cost of goods sold $220,000 $250,000 Beginning inventory Cost of goods p Cost of goods available for sale Ending inventory 32,000 173,000 205,000 44,000 161,000 44,000 202,000 246,000 52,000 194,000 59,000 56,000 Cost of goods sold Gross profit