Sprague Company reported these income statement data for a 2-year period.
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Cost of goods purchased
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
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.
(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.