Question

Data for Shelby Company for the current year is as follows:
Sales Revenue $10,000
Cost of Goods Sold:
Beginning Merchandise Inventory $3,000
Net Cost of Purchases 7,000
Cost of Goods Available for Sale 10,000
Less: Ending Merchandise Inventory 2,000
Cost of Goods Sold 8,000
Gross Profit $2,000
Assume that the ending Merchandise Inventory was accidentally understated by $300. What are the correct amounts for Cost of Goods Sold and Gross Profit?

Answer 1

Answer:

Cost of goods sold is $7,700

Gross Profit is $2,300

Explanation:

Cost of goods sold is Cost of goods available for sale less ending merchandise inventory. Ending merchandise understated by $300 means ending merchandise was accounted $300 less. So, $300 need to be added to ending merchandise. No ending merchandise is $2,300 (2,000 + 300)

Cost of goods sold will be 10,000 - 2,300 = $7,700

Gross profit is sales revenue less cost of goods sold which is computed as shown below:

Gross profit = 10,000 - 7,700

                    = $2,300