Morton Watch Company Reported the Following Income Statement Data for a 2-Year

Essay

Morton Watch Company reported the following income statement data for a 2-year period. $\begin{array}{lcc}& \underline{2016}& \underline{2017}\\ \text { Sales revenue } & \underline{\$260,000}& \underline{\$320,000}\\ \text { Cost of goods sold } &\\ \text { Beginning inventory } &32,000&44,000\\ \text { Cost of goods purchased} & \underline{193,000}& \underline{225,000}\\ \text { Cost of goods available for sale} &225,000&269,000\\ \text { Ending inventory } & \underline{44,000}& \underline{57,000}\\ \text { Cost of goods sold} & \underline{181,000}& \underline{212,000}\\ \text { Gross profit } & \underline{\$79,000}& \underline{\$108,000}\\\end{array}$
Mortan uses a periodic inventory system. The inventories at January 1 2016 and December 31 2017 are correct. However the ending inventory at December 31 2016 was overstated $5000.
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?