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Cornerstones of Financial Accounti...
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Cornerstones of Financial Accounti...
Inventory Errors
Haywood Inc. reported the following information for 2019:
A physical count of inventory at the end of the year showed that ending inventory was actually
$65,000.
Required:
1. What is the correct cost of goods sold and gross profit for 2019?
2. Assuming the error was not corrected, what is the effect on the balance sheet at December 31, 2019? At December 31, 2020?
Concept introduction:
Cost of goods Available for sale:
The Cost of goods Available for sale is the sum of beginning finished goods inventory and the cost of goods manufactured. The formula to calculate the Cost of goods Available for sale is as follows:
Cost of Goods Available for sale = Beginning inventory + Cost of Goods manufactured
Cost of Goods sold:
The Cost of goods sold is the difference of Cost of goods Available for sale and the Ending finished goods inventory. The formula to calculate the Cost of goods sold is as follows:
Cost of Goods sold = Cost of goods available for sale − Ending finished goods inventory
Requirement 1:
To calculate:
The Correct amount of Cost of Goods sold and Gross profit for 2019.
The Correct amount of Cost of Goods sold and Gross profit for 2019 is calculated as follows:
Incorrect cost of goods sold $620,000
Less: Understatement of endin...
Concept introduction:
Cost of goods Available for sale:
The Cost of goods Available for sale is the sum of beginning finished goods inventory and the cost of goods manufactured. The formula to calculate the Cost of goods Available for sale is as follows:
Cost of Goods Available for sale = Beginning inventory + Cost of Goods manufactured
Cost of Goods sold:
The Cost of goods sold is the difference of Cost of goods Available for sale and the Ending finished goods inventory. The formula to calculate the Cost of goods sold is as follows:
Cost of Goods sold = Cost of goods available for sale − Ending finished goods inventory
Requirement 2:
To indicate:
The effect of the error on the balance sheet as on Dec. 31, 2019 and at Dec. 31, 2020.
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