Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Textbook Question
Chapter 5A, Problem 2SEB
How would each of the following inventory errors affect net income for the year? Assume each is the only error during the year.
- 1. Ending inventory is overstated by $1,000.
- 2. Ending inventory is understated by $2,500.
- 3. Beginning inventory is understated by $4,000.
- 4. Beginning inventory is overstated by $2,500.
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The inventory at the end of the year was understatedby $14,750. (a) Did the error cause an overstatementor an understatement of the gross profit forthe year? (b) Which items on the balance sheet atthe end of the year were overstated or understatedas a result of the error?
If a group of inventory items costing $15,000 had been omitted from the year-end inventory count, what impact would the error have on the following inventory calculations? Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______. Enter zero if there is no amount.
Inventory Item
Amount?
None, Understated orOverstated?
Beginning Inventory
$fill in the blank 1
Purchases
fill in the blank 3
Goods Available for Sale
fill in the blank 5
Ending Inventory
fill in the blank 7
Cost of Goods Sold
fill in the blank 9
If beginning inventory is understated by $9800, the effect of this error in the current period is
Cost of Goods Sold
Net Income
overstated
understated
understated
overstated
understated
understated
overstated
overstated
Chapter 5A Solutions
Financial Accounting
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- If Wakowski Companys ending inventory was actually $86,000 but was adjusted at year end to a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardIf a group of inventory items costing $15,000 had been omitted from the year-end inventory count, what impact would the error have on the following inventory calculations? Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______. Table 10.1arrow_forwardAssuming a companys year-end inventory were overstated by $5,000, indicate the effect (overstated/understated/no effect) of the error on the following balance sheet and income statement accounts. A. Income Statement: Cost of Goods Sold B. Income Statement: Net Income C. Balance Sheet: Assets D. Balance Sheet: Liabilities E. Balance Sheet: Equityarrow_forward
- Assuming a companys year-end inventory were understated by $16,000, indicate the effect (overstated/understated/no effect) of the error on the following balance sheet and income statement accounts. A. Income Statement: Cost of Goods Sold B. Income Statement: Net Income C. Balance Sheet: Assets D. Balance Sheet: Liabilities E. Balance Sheet: Equityarrow_forwardIf Barcelona Companys ending inventory was actually $122,000, but the cost of consigned goods, with a cost value of $20,000 were accidentally included with the company assets, when making the year-end inventory adjustment, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardCompany Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forward
- An understatement of ending inventory in the year 20-1 will cause net income to be overstated in the year 20-2, assuming no other errors.arrow_forwardAn overstatement of ending inventory in the year 20-1 will cause net income to be overstated in the year 20-1.arrow_forwardCompany Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forward
- Indicate the effect of each of the following errors on the following balance sheet and income statement items for the current and succeeding years: beginning inventory, ending inventory, accounts payable, retained earnings, purchases, cost of goods sold, net income, and earnings per share. a. The ending inventory is overstated. b. Merchandise purchased on account and received was not recorded in the purchases account until the succeeding year although the item was included in inventory of the current year. c. Merchandise purchased on account and shipped FOB shipping point was not recorded in either the purchases account or the ending inventory. d. The ending inventory was understated as a result of the exclusion of goods sent out on consignment.arrow_forwardWhich of the following financial statements would be impacted by a current-year ending inventory error, when using a periodic inventory updating system? A. balance sheet B. income statement C. neither statement D. both statementsarrow_forwardTanke Company reported net income on the year-end financial statements of $850,200. However, errors in inventory were discovered after the reports were issued. If inventory was overstated by $21,000, how much net income did the company actually earn?arrow_forward
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