Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows: Thelma Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:

Question

Quizplus · Accepted Answer

The understatement of ending inventory in Year 1 would have caused the cost of goods sold for Year 1 to be overstated by $15,000. This error would carry over to Year 2, causing the beginning inventory for Year 2 to be understated by $15,000, thus understating the cost of goods sold for Year 2 by the same amount. Additionally, the overstatement of ending inventory in Year 2 by $6,000 would further understate the cost of goods sold for Year 2. Therefore, the correct cost of goods sold for Year 2 is the reported amount plus $15,000 minus $6,000, which equals $291,000.

Thelma Company Reported Cost of Goods Sold for Year 1