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Chapter 6: Q5TI (page 345)

The Shirley鈥檚 Gourmet Foods鈥� merchandise inventory data for the year ended December 31, 2018, follow:

Net Sales Revenue

\( 48,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\) 3,360

Net Cost of Purchases

21,280

Cost of Goods Available for Sale

24,640

Less: Ending Merchandise Inventory

4,960

Cost of Goods Sold

19,680

Gross Profit

\( 28,320

Assume that the ending merchandise inventory was accidentally overstated by \)1,920. What are the correct amounts for cost of goods sold and gross profit?

Short Answer

Expert verified

Correct COGS: $21,600

Correct Gross Profit: $26,400

Step by step solution

01

Correct amount of COGS

As the ending inventory has been overstated by $1,920, then the COGS must have been understated by the same amount. So to compute the correct amount for COGS, COGS must be adjusted for the error amount.

CorrectCOGS=CurrentCOGS+ErrorAmount=$19,680+$1,920=$21,600

02

Correct amount of Gross profit

Correctgrossprofit=NetSalesRevenue-CorrectCOGS=$48,000-$21,600=$26,400

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Most popular questions from this chapter

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

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鈥擣IFO

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2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.

Question:This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and continued through Chapter 5.

Consider the December transactions for Crystal Clear Cleaning that were presentedin Chapter 5. (Cost data have been removed from the sale transactions.) Crystal Clearuses the perpetual inventory system.

Dec. 2 Purchased 1,000 units of inventory for \(4,000 on account from Sparkle

Company on terms, 5/10, n/20.

5 Purchased 1,200 units of inventory from Borax on account with terms

4/10, n/30. The total invoice was for \)6,000, which included a \(300

freight charge.

7 Returned 300 units of inventory to Sparkle from the December 2

purchase.

9 Paid Borax.

11 Sold 500 units of goods to Happy Maids for \)5,500 on account with

termsn/30.

12 Paid Sparkle.

15 Received 100 units with a sales price of \(1,100 of goods back from

customer Happy Maids.

21 Received payment from Happy Maids, settling the amount due in full.

28 Sold 500 units of goods to Bridget, Inc. on account for \)6,500. Terms

1/15,n/30.

29 Paid cash for utilities of \(550.

30 Paid cash for Sales Commission Expense of \)214.

31 Received payment from Bridget, Inc., less discount.

31 Recorded the following adjusting entries:

a. Physical count of inventory on December 31 showed 800 units of

goods on hand.

b. Depreciation, \(150.

c. Accrued salaries expense of \)2,100.

d. Estimated sales returns of \(1,500, with cost of \)540.

e. Prepared all other adjustments necessary for December (Hint: You willneed to review the adjustment information in Chapter 3 to determinethe remaining adjustments). Assume the cleaning supplies left atDecember 31 are $50.

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2. Journalize the transactions for December 11th, 28th, and 31st (adjusting entry aonly) using the perpetual inventory record created in Requirement 1.

Question:Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.

The first month鈥檚 milk purchases and sales at its Freeport, Florida, location follow:

Nov. 2 Purchased 11 gallons @ \(2.15 each

6 Purchased 2 gallons @ \)2.80 each

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14 Sold 4 gallons of milk to a customer

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Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:

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Aug. 3 Sale 45 \) 85

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