Question

Novak Corp. reported cost of goods sold as follows.

		2022		2021
Beginning inventory		$ 30,970		$ 20,420
Cost of goods purchased		174,250		156,320
Cost of goods available for sale		205,220		176,740
Less: Ending inventory		35,240		30,970
Cost of goods sold		$169,980		$145,770

Novak Corp. made two errors:

1.		2021 ending inventory was overstated by $2,110.
2.		2022 ending inventory was understated by $5,500.

Compute the correct cost of goods sold for each year.

		2021		2022
The correct cost of goods sold		$enter a dollar amount		$enter a dollar amount

Answer 1

The cost of goods sold is calculated using the opening and closing inventories and purchases, It is Opening + Purchases - Closing. I.e Goods available for sale - Closing Inventory.

When the closing inventory is Overstated to rectify it the amount overstated is reduced with the closing inventory which leads to increase in cost of goods sold for current year but also note that the closing inventory of one year becomes the opening inventory of second year. Thus the opening inventory of 2022 will also change.

Further when the closing inventory is understated to rectify it the amount of understated is added back in the closing inventory which reduces the cost of goods sold.

Here the revised table for cost of goods sold calculation is given with rectification of overstatement and understatement.

	2021	2022
Opening	20420	28860
Add:Cost of Goods Purchased	156320	174250
Cost of goods Available for sale	176740	203110
Less: Ending Inventory	28860	40740
Cost of good sold	147880	162370

Thus

	2021	2022
The correct cost of goods sold	$ 147880	$ 162370