Question

Debra Company reported these income statement data for a 2-year period.

		2022		2021
Sales		$240,000		$201,600
Beginning inventory		38,400		28,800
Cost of goods purchased		193,920		166,080
Cost of goods available for sale		232,320		194,880
Ending inventory		48,000		38,400
Cost of goods sold		184,320		156,480
Gross profit		$55,680		$45,120

Debra uses a periodic inventory system. The inventories at January 1, 2021 and December 31, 2022, are correct. However, the ending inventory at December 31, 2021 is overstated by $3,840.

Prepare correct income statement data for the 2 years.

		2021		2022
select an account title		$enter a dollar amount		$enter a dollar amount
select an opening section name
select an account title		enter a dollar amount		enter a dollar amount
select an account title		enter a dollar amount		enter a dollar amount
select an account title		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
select an account title		enter a dollar amount		enter a dollar amount
select a closing section name		enter a total amount for this section		enter a total amount for this section
select an account title		$enter a total dollar amount		$enter a total dollar amount

What is the cumulative effect of the inventory error on total gross profit for the 2 years? (If answer is zero please enter 0, do not leave any field blank.)

Total gross profit for the two years

$enter Total gross profit for the two years in dollars

Answer 1

Solution:

Correct Income Statement for two years

	2021	2022
Sales	2,01,600	2,40,000
Beginning Inventory	28,800.00	34,560.00
Cost of Goods Purchased	1,66,080.00	1,93,920.00
Cost of Goods available for sale = Beginning Inventory + Cost of Goods Purchased	1,94,880.00	2,28,480.00
Ending Inventory	38,400-3,840 =34,560.00	48,000.00
Cost of Goods Sold = Cost of Goods available for sale - Ending Inventory	1,60,320.00	1,80,480.00
Gross Profit = Sales - Cost of Goods Sold	41,280.00	59,520.00

Calculation of cumulative effect of the inventory error on the gross profit for 2 years

	2021	2022	Total $
Cumulative Gross Profit (Incorrect)	45,120.00	55,680.00	100,800.00
Cumulative Gross Profit (Rectified)	41,280.00	59,520.00	100,800.00

Therefore, the cumulative effect of the inventory error on the gross profit for 2 years is 0.

Total Gross Profit for the two years is $100,800