Question

1a.

During 2021, a company sells 270 units of inventory for $94 each. The company has the following inventory purchase transactions for 2021:

Date		Transaction	Number of Units			Unit Cost			Total Cost
Jan.	1	Beginning inventory		65		$	67			$	4,355
May	5	Purchase		164			68				11,152
Nov.	3	Purchase		186			70				13,020
				415						$	28,527

Calculate ending inventory and cost of goods sold for 2021 assuming the company uses FIFO.

1b. A company overstated its ending inventory balance by $4,000 in 2021. What impact will this error have on cost of goods sold and gross profit in 2021 and 2022?

Answer 1

1(a)		Purchase	Cost of goods sold	Ending inventory
		Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
	01-Jan							65	$67	$4,355
	05-May	164	$68	$11,152				65	$67	$4,355
								164	$68	$11,152
	03-Nov	186	$70	$13,020				65	$67	$4,355
								164	$68	$11,152
								186	$70	$13,020
					65	$67	$4,355
					164	$68	$11,152
					41	$70	$2,870	145	$70	$10,150
					Cost of goods sold	$18,377
		Ending inventory =	$10,150
		Cost of goods sold=	$18,377
1(b)	The gross profit of the 2021 will be increased by $4000 and gross profit of 2022 will be decreased by $4000 in 2022.