Chapter 6, Problem 6.13S

(Learning Objective 6: Analyze the effect of an inventory error on two years)

Warner Supply’s $3.5 million cost of inventory at the end of last year was understated by $1.9 million.

  1.    Was last year’s reported gross profit of $3.1 million overstated, understated, or correct? What was the correct amount of gross profit last year?

  2.    Is this year’s gross profit of $3.4 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 $5.2 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 $5.3 million overstated, understated, or correct? What is the correct amount of cost of goods sold for this year?