Question

E1) Cost of Goods Sold for Abletrex Inc. for the year ended May 31, 2019 was $1,300,000. However, there was an understatement of ending inventory as of May 31,2019 of $90,000 and an understatement of ending inventory for the year as of May 31,2018 for $60,000. Retained Earnings for the year ended May 31,2019 was $4,000,000. a) Required: Calculate the corrected Cost of Goods Sold for the year ended May 31, 2019. b) Required: Calculated the corrected Retained Earnings for the year ended May 31, 2019.

Answer 1

a) Corrected COGS = $1,330,000 Corrected COGS = Reported COGS + Understatement of Ending Inventory for 2019 - Understatement of Ending Inventory for 2018

Given information:

Reported COGS = $1,300,000

Understatement of Ending Inventory for 2019 = $90,000

Understatement of Ending Inventory for 2018 = $60,000

Corrected COGS = $1,300,000 + $90,000 - $60,000

Corrected COGS = $1,330,000

b) To calculate the corrected Retained Earnings for the year ended May 31, 2019, we need to adjust the reported Retained Earnings by considering the change in COGS.

Change in Retained Earnings = Corrected COGS - Reported COGS

Change in Retained Earnings = $1,330,000 - $1,300,000

Change in Retained Earnings = $30,000

Corrected Retained Earnings = Reported Retained Earnings + Change in Retained Earnings

Given information:

Reported Retained Earnings = $4,000,000

Corrected Retained Earnings = $4,000,000 + $30,000

Corrected Retained Earnings = $4,030,000

Therefore, the corrected Cost of Goods Sold for the year ended May 31, 2019, is $1,330,000, and the corrected Retained Earnings for the year ended May 31, 2019, is $4,030,000.