Chapter 6, Problem 6.12E

(a)

To determine

Inventory error

Inventory errors are sometimes caused by making mistake in physical count, in pricing the inventory correctly, or in recognizing the transfer of title for the goods in transit. These inventory errors affect both the income statement as well as balance sheet.

To prepare: The correct income statement data for 2014 and 2015.

(b)

To determine

To identify: The cumulative effect of the inventory error on total gross profit for the 2 years.

(c)

To determine

To Write: A letter to the president of Company RW regarding the nature of inventory error and its effect on the financial statements.