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

c. Understated by $31,000.

Explanation:

To calculate understatement, we use the following method

Understatement of beginning inventory understate = $30,000

Cost of inventory understate = $17,000

Using this, we have

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

As understatement of cost of goods sold by Poppy Co.