Wu Watch Company, Ltd. reported the following income statement data for a 2-year period.

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

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2016 2017 HK$2,100,000 HK$2,500,000 Sales revenue Cost of goods sold eginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory 440,000 2,040,000 2,480,000 520,000 1,960,000 HKS 490,000 HKS 540,000 320,000 1,730,000 2,050,000 440,000 ,610,000 Cost of goods sold Gross profit