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

You are watching: What is the cumulative effect of the inventory error on total gross profit for the 2 years?



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

$ 59,000

$ 56,000

Rulix uses a periodic inventory system. The inventories at January 1, 2013, and December 31, 2014, are correct. However, the ending inventory at December 31, 2013, was overstated $6,000.


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

Jan 27 2021 05:41 PM

1 Approved Answer


Sanjeet kanswered on January 29, 2021
5Ratings,(21 Votes)
SOLUTION:-Ending inventory at December 31, 2018 is overstated by $6000.It should have been $38000 (instead of given amount of $44000). When we correct this error, it will result in reduction of gross profit by $6000. New gross profit in 2018 will be $53000.When the Ending inventory at December 31, 2018 is overstated by $6000, it will mean...
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