Aruba Company reported these income statement data for a 2-year period:

Aruba Company uses a periodic inventory system. The inventories at January 1, 1998, and December 31, 1999, are correct. However, the ending inventory at December 31, 1998, is overstated by \(\$ 6,000\).
\section*{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 Aruba Company what has happened-that is, the nature of the error and its effect on the financial statements.

Transcribed Image Text:

1998 1999 Sales Beginning inventory $210,000 $250,000 32,000 40,000 Cost of goods purchased 173,000 202,000 Cost of goods available for sale 205,000 242,000 Ending inventory 40,000 52,000 Cost of goods sold 165,000 Gross profit $ 45,000 190,000 $ 60,000