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

Sanjeet kanswered on January 29, 2021
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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