Crane Enterprises reported cost of goods sold for 2020 of $1,290,700 and retained earnings of $4,708,100 at December 31, 2020. Crane later discovered that its ending inventories at December 31, 2019 and 2020, were overstated by $116,750 and $32,910, respectively. Determine the corrected amounts for 2020 cost of goods sold and December 31, 2020, retained earnings.

Explanation:

An overstated opening inventory would overstate Cost of Goods sold. The overstatement should therefore be removed from the Cost of goods sold.

An overstated closing inventory would understate Cost of Goods sold. The overstatement should therefore be added to the Cost of Goods sold.

Adjusted Cost of Goods sold 2020 = Cost of Goods sold + 2020 ending inventory - 2019 opening inventory

= 1,290,700 + 32,910 - 116,750

= $1,206,860

Adjusted Retained earnings

The retained earnings would have to be adjusted for the overstatement of the current inventory by $32,910 because this understated Cost of Goods sold.

= Retained earnings - Overstatement of inventory

= 4,708,100 - 32,910

= $4,675,190

c

explanation: