Question

Whispering Enterprises reported cost of goods sold for 2020 of $1,515,400 and retained earnings of $4,687,300 at December 31, 2020. Whispering later discovered that its ending inventories at December 31, 2019 and 2020, were overstated by $107,670 and $36,850, respectively. Determine the corrected amounts for 2020 cost of goods sold and December 31, 2020, retained earnings.

Answer 1

Answer:

The corrected costs of goods sold is $1,444,580

The corrected retained earnings is $4,650,450

Explanation:

The implication of opening and closing inventories been overstated is that the cost of opening charged to costs of goods sold was much higher than it should have been while the cost of closing inventory deducted was more than should have been deducted,hence should the overstatement should now be added back.

The revised retained earnings is computed thus:

Costs of goods sold                                                         $1,515,400

add overstatement of closing inventory                         $36,850

less overstatement of opening stock                              ($107,670)

Corrected costs of goods sold                                       $1,444,580

The corrected retained earnings

Retained earnings                                                          $4,687,300

less overstatement of closing inventories                    ($36,850)

Corrected retained earnings                                          $4,650,450