The World Company's financial statements for 2019 and 2020 contain the following errors:| | 2020 | 2019 ||------------|------------------------|------------------------|| ending inventory | $6,000 overstated | $16,000 overstated || insurance expense | $4,000 understated | $12,000 overstated |Question:If World Company uses the periodic inventory system and the proper correcting entries were made for other accounts, how much will 2020 operating income be overstated or understated?Options:- $10,000 understated- $6,000 overstated- $10,000 overstated- $6,000 understated

Name: The World Company's financial statements for 2019 and 2020 contain th
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Description: The World Company's financial statements for 2019 and 2020 contain the following errors:| | 2020 | 2019 ||------------|------------------------|------------------------|| ending inventory | $6,000 overs

Solution: Understatement of income due to beginning inventory in 2020 = $16,000 Overstatement of income due to ending inventory in 2020 = $6,000 Overstatement of income due to insurance expense in 2020 = $4,000Effect of above on 2020 operating income = $16,000 - $6,000 - $4,000 = $6,000 understated Hence last option is correct.

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2020 20 nventory $6,000 overstated $16,000 e expense $4,000 understated $12,000 ny uses the periodic inventory system and the proper correcting ts, how much will 2020 operating income be overstated or und stated ced ated

2020 20 nventory $6,000 overstated $16,000 e expense $4,000 understated $12,000 ny uses the periodic inventory system and the proper correcting ts, how much will 2020 operating income be overstated or und stated ced ated

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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