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Financial Accounting

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Moderate

Inventory Over and Short

FINACT-ZKG9GV

Assume that BuyTextbook Co. had a beginning inventory of \$1,000, purchases \$6,000, and cost of goods sold \$3,000 for 2015. At the end of 2015, the company counted the inventory and determined that the total amount of ending inventory is \$3,800. The company noticed that \$200 of inventory is missing (\$1,000 + \$6,000 -\$3,000 = \$4,000 not \$3,800).

What is the net effect of this shortage of inventory on gross profit under the periodic inventory system compared to the perpetual inventory system?

A

Higher

B

Lower

C

No effect on gross profit but net income is higher for the periodic inventory system

D

No effect on gross profit but net income is lower for the periodic inventory system