Question

A review of the general ledger of East Hills Company provides the following

data for the FYE 12-31-2019

Sales Revenue

$5,455,890

Inventory at 12-31-2018

$654,900

Purchases in 2019

$2,996,980

The Company employs a pricing model that yields 45% gross profit on sales.

Required:

A. Calculate and write in the following information:

1

Write in the Cost of Goods Available for Sale (COGAFS):

$_____________________

2

Write in your expectation of Cost of Goods Sold (COGS):

$_____________________

3

Write in your expectation of Gross Profit (GP):

$_____________________

4

Write in your expectation of Ending Inventory:

$_____________________

Use this space for your calculations:

B.

If a physical count of Ending Inventory revealed inventory on hand at December 31, 2019

actually $1,100,350 select the best reason as to why?

     A) Some inventory was lost or stolen

     B) Sales were understated for the period

     C) Sales were overstated for the period

     C) Accounts Payable are understated

     D) Accounts Receivable are overstated

Answer 1

Sales revenue = 5,455,890

Beginning inventory = 654,900

Purchases = 2,996,980

Gross profit = 45% on sales

1.

Cost of goods available for sale = Beginning inventory + Purchases

= 654,900+2,996,980

= $3,651,880

2.

Cost of goods sold = Sales - Gross profit

= 5,455,890-2,455,150.50

= $3,000,739.50

3.

Gross profit = Sales x 45%

= 5,455,890 x 45%

= $2,455,150.50

4.

Cost of goods sold = Beginning inventory+ Purchases - Ending inventory

3,000,739.50 = 654,900+2,996,980 - Ending inventory

Ending inventory = $651,140.50

8.

If a physical count of ending inventory revealed inventory on hand at December 31, 2019 actually $1,100,350. It happened since accounts payable are understated.

Correct option is C.

Kindly comment if you need further assistance. Thanks‼!