The financial statement effects of inventory errors
The Finish Line, Inc. reported the following items in its fiscal 2008 financial report (dollars in millions).
|
Sales Cost of goods sold: |
2008 |
2007 |
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|
$1262 |
$1,177 |
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|
Beginning inventory |
$ 268 |
$287 |
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|
Purchases |
857 |
887 |
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|
Goods available for sale |
$1,125 |
$1,174 |
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|
Less: Ending inventory |
239 |
268 |
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|
Cost of goods sold |
886 |
906 |
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|
Cross profit |
$376 |
$371 |
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Assume that counting errors caused the ending inventory in 2007 to be understated by $50 and the ending inventory in 2008 to be overstated by $50.
a. Compute the impact of these errors on cost of goods sold for the year ended December 31, 2007, and on the inventory balance as of December 31, 2007.
b. Compute the impact of these errors on cost of goods sold for the year ended December 31, 2008, and on the inventory balance as of December 31, 2008.
c. What is the impact of these errors on cost of goods sold over the two-year period ended December 31, 2008?