Question

Bonita Enterprises reported cost of goods sold for 2020 of $1,419,800 and retained earnings of $5,569,300 at December 31, 2020. Bonita later discovered that its ending inventories at December 31, 2019 and 2020, were overstated by $99,040 and $31,710, respectively.

Determine the corrected amounts for 2020 cost of goods sold and December 31, 2020, retained earnings.

Correct cost of goods sold:

Corrected 12/31/20 Retained Earnings:

Answer 1

We know, Cost of Goods sold = Beginning Inventory + Purchases - Ending Inventory
and, Ending inventory of December 31, 2019 would be the Beginning Inventory of
December 31, 2020.
Now it says that Beginning inventory is overstated by $ 99040 and Ending Inventory is
overstated by $ 31710
Which means, Cost of Goods sold is overstated by ($ 99040 - $ 31710) $ 67330, net.
Retained earnings was overstated by $ 99040 in the last year and this year, it is understated
by $ 67330, therefore, we need to lower the retained earnings by $ 31710 more.

Therefore, the corrected figures are as follows:
Cost of Goods sold	=	$ 13,52,470.00	($ 1419800 - $ 67330)
Retained Earnings	=	$ 55,37,590.00	($ 5569300 - $ 31710)