Question

Poppy co. uses a periodic inventory system. beginning inventory on january 1 was understated by $30,000, and its ending inventory on december 31 was understated by $17,000. in addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. none of these errors were discovered until the next year. as a result, poppy's cost of goods sold for this year was:

Answer 1

Answer:

The answer is: Poppy's COGS were understated by $31,000

Explanation:

To find how the cost of goods sold were affected by the accounting errors we must add the errors in the inventory records plus the error in the purchasing records.

• Errors in inventory records = $30,000 understated inventory (Jan 1) - $17,000 understated inventory (Dec 31) = $13,000 understated
• Error in purchasing records = $20,000 real cost - $2,000 record = $18,000 understated  

How COGS were affected:

$13,000 understated + $18,000 understated = $31,000 understated