Question

Cost of Goods sold at the Pioneer Company for Year 3 and Year 4 were as follows:

	Year 3	Year 4
Beginning inventory	$ 135,000	$ 145,000
Purchases	350,000	425,000
Cost of goods available for sale	485,000	570,000
Ending inventory	145,000	150,000
Cost of goods sold	$ 340,000	$ 420,000

Pioneer Company made two errors: 1) ending inventory reported at the end of Year 3 was understated by $15,000 and 2) ending inventory at the end of Year 4 was overstated by $6,000. What should the correct cost of goods amount for Year 4?

a	$414,000
b	$426,000
c	$429,000
d	$441,000

Answer 1

Particulars	$
Beginning Inventory	145000
Add: Purchases	425000
Less: Ending Inventory	150000
Add: Understatement of ending inventory reported in year 3	15000
Less: Overstatement of ending inventory reported in year 4	6000
Correct cost of goods sold for year 4 (145000+425000-150000+15000-6000)	429000
Therefore, the right answer is option (c ) $ 429000
We have to add understatement of ending inventory reported in year 3 because it will have impact on beginning inventory of year 4. so to increase the beginning inventory of we are adding the same.
		We have to Less overstatement of ending inventory reported in year 4 because it result in overvaluation of ending inventory of year 4. so to give effect we are reducing ending inventory.