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.
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