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Chapter 6: 9SE_1 (page 359)

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?

Short Answer

Expert verified

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

Step by step solution

01

Step-by-Step-SolutionStep1: 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 –

CorrectvalueofCOGS=Currentvalue+Overstatedendinginventoryvalue=$32,700+$1,800=$34,500

02

Correct value of gross profit

Correctvalueofgrossprofit=Netsalerevenue-CorrectvalueofCOGS=$58,000-$34,500=$23,500

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Most popular questions from this chapter

Which principle states that businesses should use the same accounting methods and procedures from period to period?

Question:This problem continues the Canyon Canoe Company situation from Chapter 5. At the beginning of the January 2019, Canyon Canoe Company decided to carry and sellT-shirts with its logo printed on them. Canyon Canoe Company uses the perpetualinventory system to account for the inventory. During February 2019, Canyon CanoeCompany completed the following merchandising transactions:

Feb. 2 Sold 60 T-shirts at \(10 each.

5 Purchased 50 T-shirts at \)6 each.

7 Sold 45 T-shirts for \(10 each.

8 Sold 20 T-shirts for \)10 each.

10 Canyon Canoe Company realized the inventory was running

low, so it placed a rush order and purchased 20 T-shirts. The

premium cost for these shirts was \(7 each.

12 Placed a second rush order and purchased 40 T-shirts at \)7

each.

13 Sold 20 T-shirts for \(10 each.

15 Purchased 50 T-shirts for \)6 each.

20 In order to avoid future rush orders, purchased 150 T-shirts.

Due to the volume of the order, Canyon Canoe Company

was able to negotiate a cost of \(5 each.

21 Sold 40 T-shirts for \)10 each.

22 Sold 35 T-shirts for \(10 each.

24 Sold 20 T-shirts for \)10 each.

25 Sold 45 T-shirts for \(10 each.

27 Sold 40 T-shirts for \)10 each.

Requirements

1. Assume Canton Canoe Company began February with 94 T-shirts in inventorythat cost $5 each. Prepare the perpetual inventory records for February using theFIFO inventory costing method.

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

The first month’s 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

8 Sold 6 gallons of milk to a customer

13 Purchased 3 gallons @ $2.85 each

14 Sold 4 gallons of milk to a customer

Requirements

2. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the LIFO inventory costing method

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

The first month’s 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

8 Sold 6 gallons of milk to a customer

13 Purchased 3 gallons @ $2.85 each

14 Sold 4 gallons of milk to a customer

Requirements

1. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the FIFO inventory costing method.

Question:Assume that a Logan Burger restaurant has the following perpetual inventory record for hamburger patties:

Date PurchasesCost ofMerchandise

Goods SoldInventory on Hand

Jul. 9 \( 450 \) 450

22 \( 270 180

31 210 390

At July 31, the accountant for the restaurant determines that the current replacementcost of the ending merchandise inventory is \)435. Make any adjusting entry needed toapply the lower-of-cost-or-market rule. Merchandise inventory would be reported onthe balance sheet at what value on July 31?
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