FMA Company reported the following income statement data:

Inventory balances at January 1, 2011, and December 31, 2012, are correct. However, the ending inventory at December 31, 2011, is overstated by $5,000.
Required
Prepare corrected data for 2011 and 2012, identify all accounts that were affected by the error and whether they were overstated or understated, and calculate the cumulative two-year effect of the inventory error on gross profit.

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Sales Beginning inventory Cost of goods available for sale Ending inventory Cost of goods sold Gross profit 2011 2012 $210,000 250,000 32.000 40,000 205,000 242,000 40,000 52,000 165,000 190,000 45,000 60,000