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11111nata11111 [884]
3 years ago
6

Colman Company reports ending inventory in year 1 of $25,000 instead of the correct amount of $20,000. The effects of this error

include:
Year 1 ending inventory is understated and year 1 cost of goods sold is overstated

Year 1 ending inventory is overstated and year 1 cost of goods sold is understated

Year 1 ending inventory is understated and year 1 cost of goods sold is understated

Year 1 ending inventory is overstated and year 1 cost of goods sold is overstated
Business
1 answer:
Elodia [21]3 years ago
6 0

Answer:

Year 1 ending inventory is overstated and year 1 cost of goods sold is understated

Explanation:

The amount of ending inventory is increased by $ 5000 so the ending inventory is overstated and the cost of goods sold is understated as an amount of additional $ 5000 is deducted from it. For better understanding we consider the following

Opening Inventory $ 15000

Purchases $ 50,000

<u>Ending Inventory $ 20,000</u>

Cost Of Goods Sold = $ 45,000

Suppose we write $ 20,000 as $ 25,000 we get

Opening Inventory $ 15000

Purchases $ 50,000

<u>Ending Inventory $ 25,000</u>

Cost Of Goods Sold = $ 40,000

So we see that Year 1 ending inventory is overstated and year 1 cost of goods sold is understated  by an amount of $ 5000

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