mount valley bakery reported net sales revenue of $28,000 and cost of goods sold of $10,000. compute mount…
mount valley bakery reported net sales revenue of $28,000 and cost of goods sold of $10,000. compute mount valley bakerys correct gross profit if the company made either of the following independent accounting errors: a. ending merchandise inventory is overstated by $3,000 b. ending merchandise inventory is understated by $3,000 cost of goods sold and gross profit corrected for the error ending merchandise inventory: as reported - (a) overstated by (b) understated by incorrect $3,000 $3,000 net sales revenue $ 28,000 $ 28,000 $ 28,000 cost of goods sold 10,000 gross profit
Answer
Explanation:
Step1: Recall cost - of - goods - sold formula
Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory. An error in ending inventory affects COGS. Gross Profit = Net Sales Revenue - COGS.
Step2: Calculate correct COGS when ending inventory is overstated
When ending inventory is overstated by $3,000, COGS is understated by $3,000. The reported COGS is $10,000. The correct COGS = $10,000 + $3,000=$13,000. Gross Profit = $28,000 - $13,000 = $15,000.
Step3: Calculate correct COGS when ending inventory is understated
When ending inventory is understated by $3,000, COGS is overstated by $3,000. The correct COGS = $10,000 - $3,000 = $7,000. Gross Profit = $28,000 - $7,000=$21,000.
| As Reported - Incorrect | (a) Overstated by $3,000 | (b) Understated by $3,000 | |
|---|---|---|---|
| Net sales revenue | $28,000 | $28,000 | $28,000 |
| Cost of goods sold | $10,000 | $13,000 | $7,000 |
| Gross profit | $18,000 ($28,000 - $10,000) | $15,000 ($28,000 - $13,000) | $21,000 ($28,000 - $7,000) |
Answer:
| As Reported - Incorrect | (a) Overstated by $3,000 | (b) Understated by $3,000 | |
|---|---|---|---|
| Net sales revenue | $28,000 | $28,000 | $28,000 |
| Cost of goods sold | $10,000 | $13,000 | $7,000 |
| Gross profit | $18,000 | $15,000 | $21,000 |