23E_a

Question

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

a. Ending merchandise inventory is overstated by $8,000.

Step-by-Step Solution

Verified

Answer

The correct gross profit would be $3,000.

1Step-by-Step-Solution Step1: Calculation of correct COGS

Ending merchandise is overstated by $8,000

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

So, the correct COGS would be

$C o r r e c t C O G S = C u r r e n t C O G S + U n d e r s t a t e d a m o u n t = $ 33, 000 + $ 8, 000 = $ 41, 000$

2Step 2: Calculation of correct gross profit

$C o r r e c t g r o s s p r o f i t = N e t R e v e n u e - C o r r e c t C O G S = $ 44, 000 - $ 41, 000 = $ 3, 000$

Q 22E-2

23E_b

Other exercises in this chapter

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Q 22E-2

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23E_b

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Q 24E-1

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