Zenkins Inc. made errors in their 2014 and 2015 recordings that affected their m
ID: 2427467 • Letter: Z
Question
Zenkins Inc. made errors in their 2014 and 2015 recordings that affected their merchandise inventory. During 2014 the ending inventory was overstated $5,000 and purchase returns & allowances for 2014 were understated $1,200. During 2015 purchases were overstated $3,500 and the ending 2015 merchandise inventory was understated $2,000. Assume that the above is the only errors made and that none of these errors were corrected during 2014 and 2015.
Required:
What is the dollar amount effect on the cost of goods sold and gross profit for 2014?
What is the dollar amount effect on gross profit and retained earnings for 2015?1. Zenkins Inc. made errors in their 2014 and 2015 recordings that affected their merchandise inventory. During 2014 the ending inventory was overstated $5,000 and purchase returns & allowances for 2014 were understated $1,200. During 2015 purchases were overstated $3,500 and the ending 2015 merchandise inventory was understated $2,000. Assume that the above is the only errors made and that none of these errors were corrected during 2014 and 2015.
Required:
What is the dollar amount effect on the cost of goods sold and gross profit for 2014?
What is the dollar amount effect on gross profit and retained earnings for 2015?
Explanation / Answer
Statement showing computations Particulars Amount 2014 Ending Inventory Overstated 5,000.00 Cost of goods sold was understated by 5000 and gross profit was overstated by 5000 Purchase returns understated 1,200.00 Cost of goods sold was Overstated by 1200 and gross profit was understated by 1200 Net Effect COGS understated by 3800(5000-1200) gross profit overstated by 3800(5000-1200) 2015 Ending Inv of 2014 will become opening Inv of 2015 Thus Opening inv overstated 5,000.00 Cost of goods sold was Overstated by 5000 and gross profit was Understated by 5000 Purchases Overstated 3,500.00 Cost of goods sold was Overstated by 3500 and gross profit was Understated by 3500 Ending Inventory Understated 2,000.00 Cost of goods sold was Overstated by 2000 and gross profit was Understated by 2000 Net Effect COGS Overstated by 10500(5000+2000+3500) gross profit Understated by 10500(5000+2000+3500) Retained earnings will be understated by 10500
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