Question

March 15 current year: Erin created a new inventory item named Birdbath April 20 current year: Erin bought 80 bags of mulch for $640.00 June 12 current year: Erin bought 75 bags of mulch for $618.75 June 15 current year: Erin sold 125 bags of mulch to Woody's Weeds When creating the item, a beginning quantity of 25 and a cost value of $23.82 per unit was mistakenly entered. What is the effect on the General Ledger when Erin saves the new birdbath item?

Answer 1

The effect on General Ledger with the creation of the new inventory item "Birdbath" on March 15, when beginning inventory of 25 units at a cost per unit of $23.82 recorded by Erin, is the overstatement of the Ending Inventory by $595.50.

Data and Calculations:

Date            Description                   Units         Unit Cost     Total Cost

March 15    Beginning Inventory   25 bags       $23.82       $595.50

April 20      Purchase                      80 bags         $8.00       $640.00

June 12      Purchase                      75 bags         $8.25        $618.75

June 15      Sale                             125 bags

Ending inventory in units (correct balance) = 30 bags (155 - 125)

Ending inventory in units (per records) = 55 bags

Thus, the overstatement of the Ending Inventory by $595.50 makes the General Ledger balances to disagree.

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