Impact of Inventory Errors $$ Periodic Inventory

The following summarizes the activities of M$4$ Engineering Inc for the previous year:

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Sales

Beginning Inventory Ending Inventory Inventory Purchases $($net$)$ Selling Expenses Administration Expenses

$$500,000100,000120,000200,000$

$80,00030,000$

Based on this information, the Cost of Goods Sold for the year would be calculated as:

Beginning Inventory

$+$ Inventory Purchases $($net$)$

$=$ Cost of Goods Available for Sale $-$ Ending Inventory

Cost of Goods Sold

Calculate M$4$ Engineering$$s$$ Net Income for the Year: M$4$ Engineering Inc

Income Statement

For the Year Ended December $31$

$100,000+200,000=300,000$

$-120,000=180,000$

Sales

Cost of Goods Sold Gross Profit

Selling Expenses Administration Expenses Total Operation Expenses Net Income

$

$

$

$

Assume that a mistake was made in the counting of the ending inventory. The actual ending Inventory amount was $$110,000.$ Calculate the correct Cost of Goods Sold and the Correct Net Income.

Beginning Inventory

$+$ Inventory Purchases $($net$)$

$=$ Cost of Goods Available for Sale $-$ Ending Inventory

Cost of Goods Sold

M$4$ Engineering Inc Income Statement $-$ Corrected For the Year Ended December $31$

$100,000+200,000=300,000$

$-=$

Sales

Cost of Goods Sold Gross Profit

Selling Expenses Administration Expenses Total Operation Expenses Net Income

$

$

$

$

M$.$ Baker V$1$ Page $1$

Accounting $1$A Chapter $6$ Inventories

What is the impact of the error in inventory on the income statement? What items are over$/$understated as a result of the error?

Cost of Goods Sold under Perpetual Inventory System

M$4$ Engineering uses a perpetual inventory system and have the following transactions: January $10$: Beginning Inventory $=100$ units at a cost of $$28$ per unit

January $15$: Sold $72$ units