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Intermediate Accounting (Kieso)
Found in: Page 423

Short Answer

Bienvenu Enterprises reported cost of goods sold for 2017 of $1,400,000 and retained earnings of $5,200,000 at December 31, 2017. Bienvenu later discovered that its ending inventories at December 31, 2016 and 2017, were overstated by$110,000 and $35,000, respectively. Determine the corrected amounts for 2017 cost of goods sold and December 31, 2017,retained earnings.

Corrected COGS and retained earnings are $1,325,000 and $5,275,000, respectively.

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Step by Step Solution

Correct amount of cost of goods sold for 2017

As the ending inventory for 2016 is overstated by $110,000, the opening inventory for 2017 would have the same effect.

The ending inventory for 2017 is overstated by $35,000.

Correct amount of retained earnings for 2017

As the COGS has been overstated, there would be an opposite effect on the retained earnings. Thus the retained earnings have been underestimated.

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