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Chapter 6: 23E_b (page 364)

Question:Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread鈥檚 correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.

b. Ending merchandise inventory is understated by $8,000.

Short Answer

Expert verified

The correct gross profit would be $19,000.

Step by step solution

01

Step-by-Step-SolutionStep1: Calculation of correct COGS

Ending merchandise is understated by $8,000

So the COGS has been overstated by the same amount i.e. $8,000.

So, the correct COGS would be

CorrectCOGS=CurrentCOGS-Overstatedamount=$33,000-$8,000=$25,000

02

Calculation of correct gross profit

Correctgrossprofit=NetRevenue-CorrectCOGS=$44,000-$25,000=$19,000

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Most popular questions from this chapter

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.

Preparing a perpetual inventory record and journal entries鈥� Weighted-average

Requirements

1. Prepare Boston Cycle鈥檚 perpetual inventory record assuming the company uses theweighted-average inventory costing method.

What does the disclosure principle require?

What is the effect on the cost of goods sold, gross profit, and net income if ending merchandise inventory is understated?

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:

Jan. 5 Purchase 156 crates @ \) 64 each

13 Sale 180 crates @ \( 100 each

18 Purchase 114 crates @ \) 75 each

26 Sale 150 crates @ $ 116 each

Requirements

1. Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company鈥檚 cost of goods sold, ending merchandise inventory, and gross profit.

Question:Antique Carpets鈥檚 books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

2019

2018

2017

Net Sales Revenue

\( 212,000

\) 161,000

\( 170,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\)22,000

\(28,000

\)41,000

Net cost of purchase

131,000

100,000

86,000

Cost of goods available for sale

153,000

128,000

127,000

Less: Ending Merchandise Inventory

34,000

22,000

28,000

Cost of goods sold

119,000

106,000

99,000

Gross Profit

93,000

55,000

71,000

Operating Expenses

63,000

28,000

39,000

Net Income

\( 30,000

\) 27,000

$ 32,000

Requirements

1. Prepare corrected income statements for the three years.
2. State whether each year鈥檚 net income鈥攂efore your corrections鈥攊s understated oroverstated, and indicate the amount of the understatement or overstatement.

3. Compute the inventory turnover and days鈥� sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)
See all solutions

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