Analyze the effect of an inventory error on two years
Response to the following problem:
Quick Office Supplies' $3.8 million cost of inventory at the end of last year was understated by $1.1 million.
1. Was last year's reported gross profit of $2.7 million overstated, understated, or correct? What was the correct amount of gross profit last year?
2. Is this year's gross profit of $3.6 million overstated, understated, or correct? What is the correct amount of gross profit for the current year?
3. Was last year's reported cost of goods sold of $5.1 million overstated, understated, or correct? What was the correct amount of cost of goods sold last year?
4. Is this year's cost of goods sold of $5.7 million overstated, understated, or correct? What is the correct amount of cost of goods sold for this year?