Wu Jewelry reported the following income statement data for a 2-year period.

Wu uses a periodic inventory system. The inventories at January 1, 2019, and December 31, 2020, are correct. However, the ending inventory at December 31, 2019, was understated HK$60,000.

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 Wu what has happened, i.e., the nature of the error and its effect on the financial statements.

Transcribed Image Text:

2019 2020 Sales revenue Cost of goods sold Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold Gross profit HK$2,100,000 HK$2,500,000 320,000 440,000 2,040,000 1,730,000 2,050,000 2,480,000 520,000 440,000 1,610,000 1,960,000 HK$ 540,000 HK$ 490,000