32)
It means that it is a measure that states 3.5 times, the inventory is sold or used in a period particular period of time.
The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory and the average inventory is calculated by adding the beginning and ending inventory balances and divided by 2.
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37)
The ending inventory in period one will be the beginning inventory in period two so the cost of goods sold will increase due to overstating the beginning inventory. It is explain with the below example -
Original Data | ||
Period 1 | Period 2 | |
Beginning inventory | $9,000 | $10,000 |
Add: Purchases | $13,000 | $15,000 |
Goods available for sale | $22,000 | $25,000 |
Ending inventory | $10,000 | $8,000 |
Cost of Goods Sold | $12,000 | $17,000 |
Overstating the Ending Inventory in period 1 | ||
Period 1 | Period 2 | |
Beginning inventory | $9,000 | $12,000 |
Add: Purchases | $13,000 | $15,000 |
Goods available for sale | $22,000 | $27,000 |
Ending inventory | $12,000 | $8,000 |
Cost of Goods Sold | $10,000 | $19,000 |
From original data, the ending inventory of $10,000 in period 1 is overstated to $12,000 so the cost of goods sold in period 2 is increased from $17,000 to $19,000.
Therefore, when ending inventory is overstated in period 1, the cost of goods sold in period 2 will also increase. When cost of goods sold increases, the gross profit decreases because the gross profit is calculated by deducting the cost of goods sold from the sales revenue.
When gross profit decreases, the net income also decreases because the net income is calculated by deducting the selling and administrative expenses from the gross profit.
32. What does an inventory turnover of 3.5 mean? 37. If ending inventory is overstated by...
An audit revealed that in determining these amounts, the ending
inventory for 2016 was overstated by $22,000. The inventory balance
on December 31, 2017, was accurately stated. The company uses a
periodic inventory system.
Required:
1. Restate the partial income statements to
reflect the correct amounts, after fixing the inventory error.
2-a. Compute the gross profit percentage for
each year (a) before the correction and (b) after
the correction.
2-b. Does the pattern of gross profit
percentages lend confidence to...
TULUI 30,000 30,000 Glacier made two errors: (1) 2020 ending inventory was overstated by $5,500, and (2) 2021 ending inventory was understated by $4,000. Instructions a. Calculate the correct cost of goods sold and ending inventory for each year. b. Describe the impact of the errors on profit for 2020 and 2021 and on owner's equity at the end of 2020 and 2021. c. Explain why it is important that Glacier Fishing Gear correct these errors as soon as they...
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If the ending inventory on December 31, 2011, is overstated by $6,000, which of the following would result? O Net income for 2012 would be overstated O Cost of goods sold for 2011 would be understated O Net income for 2011 would be understated O Expenses for 2012 would be understated,
accountant for Susan company made the following areas related
to inventory in 20
The accountant for Suzanne Company made the following errors related to inventory in 2017 1. The beginning inventory for 2017 was overstated by $1,375 due to an error in the physical count. 2. A $1,650 purchase of merchandise on credit in 2017 was not recorded or included in the ending inventory Assuming a periodic inventory system, how would Sue's costs of goods sold, gross profit, and net...
77) Given the following data: Ending inventory at cost $24,000 Ending inventory at current net realizable value 23,600 Cost of goods sold (before consideration of the lower-of-cost-and-net-realizable-value rule) 37,000 Which of the following depicts the proper account balance after the application of the lower-of-cost-and-net realizable value rule? A) Cost of goods sold will be $37,400. B) Cost of goods sold will be $36,400. C) Cost of goods sold will be $37,000. D) Ending inventory will be $24,000. 78) Inventory at...
Learning Objectives 5, 6 P6-31A Correcting inventory errors over a three-year period and computing inventory turnover and days' sales in inventory Empire State Carpets's books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by $8,000 and that the ending merchandise inventory for 2019 was overstated by $9,000. The ending mer chandise inventory at December 31, 2018, was correct. 2. 2019, overstated $9,000 2019 2018 2017 Net Sales Revenue Cost of...
Can someone please provide a detailed explanation of the
solution
DO IT! 3 Inventory Errors Visual Company overstated its 2018 ending inventory by $22,000. Determine the impact this error has on ending inventory, cost of goods sold, and stockholders' equity in 2018 and 2019. Action Plan An ending inventory error in one period will have an equal and opposite effect on cost of goods sold and net income in the next period. ✓ After two years, the errors have offset...
The ending inventory of Sandie’s Candies is overstated by $75,000 at December 31, 20x8. What is the effect on 20x8’s net income, assuming that no other inventory errors have occurred during 20x8? Group of answer choices a. $150,000 overstated b. $75,000 understated c. no effect d. $75,000 overstated