Acc280 Financial Accounting: E6-12 Staley Watch Company reported the following income statement
Acc280 Financial Accounting E6-12 Staley Watch Company reported the following income statement data for a 2-year period. 2008 2009 Sales 213,000 259,000 Cost of goods sold Beginning inventory 32,300 44,600 Cost of goods purchased 182,000 203,000 Cost of goods available for sale 214,300 247,600 Ending inventory 44,600 52,100 Cost of goods sold 169,700 195,500 Gross Profit 43,300 63,500
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31, 2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,800.
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 Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.