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?

2013

2014

Sales revenue

$220,000

$250,000

Cost of goods sold

Beginning inventory

32,000

44,000

Cost of goods purchased

173,000

202,000

Cost of goods available for sale

205,000

246,000

Ending inventory

44,000

52,000

Cost of goods sold

161,000

194,000

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.

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 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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