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Effects of an Error in Ending Inventory Waymire Company prepared the partial income statements presented below...

Effects of an Error in Ending Inventory

Waymire Company prepared the partial income statements presented below for 2019 and 2018.

2019 2018
Sales revenue $538,200 $483,700
Cost of goods sold:
Beginning inventory $39,300 $32,100
Purchases 343,200 292,700
Cost of goods available for sale 382,500 324,800
Ending inventory (46,800) 335,700 (39,300) 285,500
Gross margin $202,500 $198,200
Operating expenses (167,200) (151,600)
Income before taxes $35,300 $46,600

During 2020, Waymire's accountant discovered that ending inventory for 2018 had been understated by $6,500.

Business   Accounting   
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Answer #1

When ending inventory for 2018 is understated by $6500 then 2018 Cost of goods sold is overstated by $6500 and 2018 income before tax is understated by $6500.

2019 Beginning inventory is understated and Cost of good sold is also understated and net income is overstated.

2019 2018
Sales 538200 483700
Cost of goods sold
Beginning inventory 45800 32100
Purchases 343200 292700
Cost of goods available for sale 389000 324800
Less: Ending inventory -46800 342200 -45800 279000
Gross margin 196000 204700
Operating expense 167200 151600
Income before taxes 28800 53100
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