Cost of Goods sold at the Pioneer Company for Year 3 and Year 4 were as follows:
ID: 2398472 • Letter: C
Question
Cost of Goods sold at the Pioneer Company for Year 3 and Year 4 were as follows:
Pioneer Company made two errors: 1) ending inventory reported at the end of Year 3 was understated by $15,000 and 2) ending inventory at the end of Year 4 was overstated by $6,000. What should the correct cost of goods amount for Year 4?
a
$414,000
b
$426,000
c
$429,000
d
$441,000
Year 3 Year 4 Beginning inventory $ 135,000 $ 145,000 Purchases 350,000 425,000 Cost of goods available for sale 485,000 570,000 Ending inventory 145,000 150,000 Cost of goods sold $ 340,000 $ 420,000Explanation / Answer
Particulars $ Beginning Inventory 145000 Add: Purchases 425000 Less: Ending Inventory 150000 Add: Understatement of ending inventory reported in year 3 15000 Less: Overstatement of ending inventory reported in year 4 6000 Correct cost of goods sold for year 4 (145000+425000-150000+15000-6000) 429000 Therefore, the right answer is option (c ) $ 429000 We have to add understatement of ending inventory reported in year 3 because it will have impact on beginning inventory of year 4. so to increase the beginning inventory of we are adding the same. We have to Less overstatement of ending inventory reported in year 4 because it result in overvaluation of ending inventory of year 4. so to give effect we are reducing ending inventory.