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Fad City sells novel clothes that are subject to a great deal of price volatility
Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $20.40 was marked up $12.30, marked down for a sale by $5.20 and then had a markdown cancellation of $4.00. The latest selling price is:
Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $31,400, and its ending inventory on December 31 was understated by $15,800. In addition, a purchase of merchandise costing $20,900 was incorrectly recorded as a $2,090 purchase. None of these errors were discovered until the next year. As a result, Poppy's cost of goods sold for this year was:
Expert Solution
Answer :
1)
| Computation of latest selling price | |
| Cost | $20.40 |
| Add : Mark up | $12.30 |
| ( $20.40 + $12.30 ) | $32.7 |
| Less : Marked Down For Sale | $5.20 |
| ( $32.7 - $5.20 ) | $27.5 |
| Add : Mark down cancellation | $4.00 |
| Selling Price | $31.5 |
2)
Understated by $34,410
Understatement of beginning inventory understates (–) cost of goods sold and the understatement of ending inventory overstates (+) cost of goods sold. Also, the understatement of purchases understates (–) cost of goods sold:
= –$31,400 + $15,800 – ($20,900 – $2,090)
= -$15600 - 18810
= -$34,410 understatement of cost of goods sold
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