Kim Company's accountant made the following errors related to merchandise inventory in 2010: 1. The begining inventory for 2010 was overstated by $\$ 1,900$ due to an error in the physical count.
2. A $\$ 1,150$ purchase of merchandise on credit was not recorded, but the items were included in the ending inventory.
Assuming a periodic inventory system, Kim Company's 2010 cost of goods sold will be

A) understated by $750
B) understated by $1, 900
C) overstated by $750
D) overstated by $1, 900

Question

Kim Company's accountant made the following errors related to merchandise inventory in 2010: 1. The begining inventory for 2010 was overstated by

\$ 1,900

due to an error in the physical count.
2. A

\$ 1,150

purchase of merchandise on credit was not recorded, but the items were included in the ending inventory.
Assuming a periodic inventory system, Kim Company's 2010 cost of goods sold will be

A) understated by $750
B) understated by $1, 900
C) overstated by $750
D) overstated by $1, 900

kenneth burnett sr · Accepted Answer

Final Answer : C, Explanation :  The beginning inventory was overstated by $1,900, which would initially cause the cost of goods sold (COGS) to be overstated. However, the failure to record a $1,150 purchase (while including these items in the ending inventory) would understate COGS. The net effect is an overstatement of COGS by $750 ($1,900 overstated beginning inventory - $1,150 unrecorded purchase).

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