Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Poppy's cost of goods sold for this year was:
A) Overstated by $31,000.
B) Overstated by $5,000.
C) Understated by $31,000.
D) Understated by $48,000.

Question

Quizplus · Accepted Answer

Understatement of beginning inventory understates (-) cost of goods sold and the understatement of ending inventory overstates (+) cost of goods sold. Also, the understatement of purchases understates (-) cost of goods sold:
-$30,000 + 17,000 - 18,000 ($20,000 - 2,000) = -$31,000 understatement of cost of goods sold

Poppy Co Uses a Periodic Inventory System