PROBLEM 1

SOLUTION

2007 2008 2009

Beginning inventory 1/1 $40,000 $29,000 $20,000
Cost of goods purchased (1) $75,000 $55,000 $70,000
Cost of goods available for sale $115,000 $84,000 $90,000
Ending inventory 12/31 (2) $24,000 (3) $20,000 $40,000
Cost of goods sold $91000 $64,000 $50,000

2007 2008 2009

Net Income previously reported $70,000 $60,000 $55,000
Add: Prior cost of goods sold $72,000 $48,000 $55,000
Less: Revised cost of goods sold ($91,000) ($64,000) ($50,000)
Corrected Net Income $51,000 $44,000 $60,000

(1) Additional purchases $25,000

(2) Additional ending inventory $6,000
(3) Less ending inventory $5,000
PROBLEM 2
SOLUTION
2008

AMOUNT

Total assets $6,000

Owner's Equity $6,000
Cost of goods sold $6,000
Net Income $6,000

Correct cost of goods sold:

2008
Beginning inventoy $54,000
Cost of goods purchased $847,000
Cost of goods available for sale $901,000
Ending inventory $58,000
Cost of goods sold $843,000
2008 2009

UNDERSTATED/OVERSTATED AMOUNT UNDERSTATED/OVERSTATED

OVERSTATED $15,000 UNDERSTATED

OVERSTATED $15,000 UNDERSTATED
UNDERSTATED $21,000 OVERSTATED
OVERSTATED $21,000 UNDERSTATED

2009
$58,000
$891,000
$949,000
$70,000
879,000
PROBLEM 3
SOLUTION

DATE PURCHASES SALES BALANCE

1-Mar (100 @ $40) $4,000

3-Mar (60 @ $50) $3,000 (100 @ $40)

(60 @ $50) $7,000

4-Mar (70 @ $40) $2,800 (30 @ $40)

(60 @ $50) $4,200

10-Mar (200 @ $55) $11,000 (30 @ $40)

(60 @ $50)
(200 @ $55) $15,200

16-Mar (30 @ $40) (10 @ $50)

(50 @ $50) $3,700 (200 @ $55) $11,500

19-Mar (40 @ $60) $2,400 (10 @ $50)

(200 @ $55)
(40 @ $60) $13,900

25-Mar (10 @ $50) (90 @ $55)

(110 @ $55) $6,550 (40 @ $60) $7,350

March cost of goods sold = $13,050 ($2,800 + $3,700 + $6,550)

March 31 inventory = $7,350
PROBLEM 4
SOLUTION
AT COST AT RETAIL
Beginning inventory $ 35,000 $ 50,000
Merchandise purchases $115,000 $150,000
Goods available for sale $150,000 $200,000
Net sales $140,000
(1)Ending inventory at retail $ 60,000
(2) Cost to retail ratio = 75% ($150,000 ÷ $200,000)
(3) Ending inventory at cost = ($60,000 × 75%) = $45,000
PROBLEM 5
SOLUTION

Net sales $360,000

Less: Estimated gross profit ($360,000 x 35%) $126,000
Estimated cost of goods sold $234,000

Beginning inventory $150,000

Merchandise purchases $180,000
Goods available for sale $330,000
Less: Estimated cost of goods sold $234,000
Estimated cost of ending inventory destroyed by fire $96,000