Question: Sheen Company reported these income statement data for a 2-year period.
Sheen Company 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, is overstated by $8,000.
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 Sheen Company what has happened- that is, the nature of the error and its effect on the financial statements.