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Chapter 6: 9SE_2 (page 359)

Question:New York Pool Supplies鈥檚 merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit $ 25,300

Requirements

2. How would the inventory error affect New York Pool Supplies鈥檚 cost of goodssold and gross profit for the year ended December 31, 2020, if the error is not correctedin 2019?

Short Answer

Expert verified

If the error is not corrected in 2019, the COGS would be overstated and gross profit would be understated by $1,800 in 2020.

Step by step solution

01

Step-by-Step-SolutionStep1: COGS in 2020 if the error is not corrected

If the error is not corrected then the opening inventory for 2020 would also be overstated by $1,800.

In such a case, the COGS for 2020 would be overstated by the same amount i.e. $1,800. This is so because the ending inventory is added purchased value to compute COGS.

02

Gross profit in 2020 if the error is not corrected

As discussed above, the COGS would be overstated in 2020 if the error is not corrected.

So in his case, the gross profit for 2020 would be understated by the same amount which is $1,800. This is so as the gross profit is the difference between the net revenue and COGS.

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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鈥擫IFO

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1. Prepare Boston Cycle鈥檚 perpetual inventory record assuming the company uses theLIFO inventory costing method.

Question:Broadway Communications reported the following figures in its annual financial statements:

Cost of Goods Sold $ 18,400

Beginning Merchandise Inventory 560

Ending Merchandise Inventory 450

Compute the rate of inventory turnover and days鈥� sales in inventory for BroadwayCommunications. (Round to two decimal places.)

Question:New York Pool Supplies鈥檚 merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit \( 25,300

Requirements

1. Assume that the ending merchandise inventory was accidentally overstated by\)1,800. What are the correct amounts for cost of goods sold and gross profit?

Accounting for inventory using the perpetual inventory system鈥�

FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Aug. 3 Sale 45 \) 85

8 Purchase 90 $ 54

21 Sale 85 88

30 Purchase 15 58

Requirements

4. Determine the company鈥檚 cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods.

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

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Requirements

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