9SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: New York Pool Supplies’s 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?

Step-by-Step Solution

Answer

The correct value of COGS and gross profit is $34,500 and $23,500 respectively.

Step-by-Step-Solution Step1: Correct value of the cost of goods sold

As the ending inventory has been overstated by $1,800, so the COGS would be understated by the same amount. 

So the correct value of COGS would be as follow –

$$\begin{gathered} CorrectvalueofCOGS=Currentvalue+Overstatedendinginventoryvalue \\ =\$32,700+\$1,800 \\ =\$34,500 \end{gathered}$$

Step 2: Correct value of gross profit

$$\begin{gathered} Correctvalueofgrossprofit=Netsalerevenue-CorrectvalueofCOGS \\ =\$58,000-\$34,500 \\ =\$23,500 \end{gathered}$$