Mount ValleyMount Valley Bakery reported net sales revenue of $ 37 comma 000$37,

Question

Mount ValleyMount Valley

Bakery reported net sales revenue of

$ 37 comma 000$37,000

and cost of goods sold of

$ 11 comma 000$11,000.

Compute

Mount Valley'sMount Valley's

correct gross profit if the company made either of the following independent accounting errors.

$ 3 comma 000$3,000.

$ 3 comma 000$3,000.

Cost of Goods Sold and Gross Profit

Corrected for the Error

Ending Merchandise Inventory:

As Reported—

(a) Overstated

(b) Understated

Incorrect

by $3,000

by $3,000

Net sales revenue

$37,000

$37,000

$37,000

Cost of goods sold

11,000

Gross profit

a.Ending merchandise inventory is overstated by

$ 3 comma 000$3,000.

b.Ending merchandise inventory is understated by

$ 3 comma 000$3,000.

Explanation / Answer

in case ( a) when ending merchandise inventory is overstated by $ 3000 then cost of Goods sold is $ 14000 and gross profit is $ 23000(37000-14000=23000)

and in case (b) ending merchandise inventory is understated by $ 3000 then Cost of goods sold is $ 8000 and gross profit would be $ 29000 (37000-8000=29000)

Particulars Ending merchandise inventory is overstated by $ 3000 Ending merchandise inventory is understated by $ 3000 Cost of Goods sold $ 14000 $ 8000 Gross profit $ 23000 $ 29000

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