Sheen Company reported these income statement data for a 2-year period. 

Sheen Company uses a periodic inventory system. The inventories at January 1, 2021, and December 31, 2022, are correct. However, the ending inventory at December 31, 2021, is overstated by $8,000. 

Instructions 

a. Prepare correct income statement data for the 2 years. 

b. What is the cumulative eff ect of the inventory error on total gross profi t for the 2 years? 

c. Explain in a letter to the president of Sheen Company what has happened—that is, the nature of the error and its eff ect on the fi nancial statements.

Transcribed Image Text:

2021 2022 Sales revenue Beginning inventory Cost of goods purchased Cost of goods available for sale $250,000 40,000 202,000 $210,000 32,000 173,000 205,000 40,000 242,000 55,000 Less: Ending inventory Cost of goods sold Gross profit 187,000 165,000 $ 45,000 $ 63,000