E6-12 Assignment - (a) 2008 2009 Sales $210,000 $250,000...

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E6-12 Staley Watch Company reported the following income statement data for a 2-year period. 2008 2009 Sales $210,000 $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 $ 49,000 $ 56,000 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 $5,000. 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 Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.
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Unformatted text preview: (a) 2008 2009 Sales $210,000 $250,000 Cost of goods sold Beginning inventory 32,000 39,000 Cost of goods purchased 173,000 202,000 Cost of goods available for sale 205,000 241,000 Ending inventory 39,000 52,000 Cost of goods sold 156,000 189,000 Gross profit $ 54,000 $ 61,000 (b) The cumulative effect of the inventory error for total gross profit for the 2 years is $ 5,000. (c) To the President of Staley Company, Due to the nature of the error and its effects on the financial statements we have come to a conclusion to why the income statement was incorrect. We found an error to the ending inventory in 2008 and have fixed the error in question. Here is a copy of the correct income statement and are pleased to see that we have a 5,000 dollar increase to our gross profit....
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