Prunedale Co

Multiple Choice

Prunedale 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 following year. As a result, Prunedale'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.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