Sprague Company reported these income statement data for a 2-year period.
| 2012 Don't use plagiarized sources. Get Your Custom Essay on sprague company reported these income statement data for a 2 year period 533828 For $10/Page 0nly | 2011 | |
| Sales revenue | $250,000 | $210,000 |
| Beginning inventory | 40,000 | 32,000 |
| Cost of goods purchased | 202,000 | 173,000 |
| Cost of goods available for sale | 242,000 | 205,000 |
| Less: Ending inventory | 55,000 | 40,000 |
| Cost of goods sold | 187,000 | 165,000 |
| Gross profit | $63,000 | $45,000 |
Sprague Company uses a periodic inventory system. The inventories at January 1, 2011, and December 31, 2012, are correct. However, the ending inventory at December 31, 2011, is overstated by $8,000.
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 Sprague Company what has happened—that is, the nature of the error and its effect on the financial statements.
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