Question

The beginning inventory of BG Action Figures is understated by $7 million at December 31, 20x8. What is the effect on 20x8 cost of goods sold? Group of answer choices

Answer 1

Answer: Understated by $7 million

Explanation:

Cost of goods old is calculated by deducting the closing balance of inventory from the Opening balance and the Purchases for the period in the manner:

Cost of Goods sold = Opening inventory + Purchases - Closing stock.

Going by the formula, if the opening inventory is understated by $7 million, the cost of goods sold will be understated by the same amount because opening inventory adds to Cost of goods sold.