A company discovered in Year 3 that the following inventory errors had occurred:
- Ending Inventory for Year 1 was understated by $5,000.
- Ending Inventory for Year 2 was overstated by $7,000.
Determine the effect those errors would have on the Year 1 and Year 2 financial statements:
-
How do the errors above affect Assets reported on the Year 1 financial
statements? Assets would be...
- a. Overstated by $2,000
- b. Overstated by $5,000
- c. Overstated by $7,000
- d. Understated by $5,000
- e. Understated by $12,000
-
How do the errors above affect Net Income reported on the Year 1 financial
statements? Net income would be...
- a. Overstated by $2,000
- b. Overstated by $5,000
- c. Overstated by $7,000
- d. Understated by $5,000
- e. Understated by $12,000
-
How do the errors above affect Assets reported on the Year 2 financial
statements? Assets would be...
- a. No effect on assets
- b. Overstated by $2,000
- c. Overstated by $7,000
- d. Understated by $2,000
- e. Understated by $7,000
-
How do the errors above affect Net Income and Shareholders’ Equity reported on the
Year 2 financial statements? Net Income and Shareholders’ Equity would be...
Net Income Shareholders’ Equity A Understated by $12,000 Understated by $7,000 B Overstated by $5,000 No effect C Overstated by $7,000 Overstated by $2,000 D Overstated by $7,000 Overstated by $7,000 E Overstated by $12,000 Overstated by $7,000
The Rest Of TheVideos
| 1 | Not completed | COGS and Inventory | 3 min |
| 2 | Not completed | Net Sales | 11 min |
| 3 | Not completed | Perpetual vs Periodic | 8 min |
| 4 | Not completed | Transportation In | 9 min |
| 5 | Not completed | COGS | 7 min |
| 6 | Not completed | Drawbacks to Periodic | 7 min |
| 7 | Not completed | Estimating with Gross Profit | 8 min |
Chapter 4Practice Problems
| Click Here to View All Problems at Once | View | ||
| 1 | Not completed | Loss On Inventory | Easy |
| 2 | Not completed | The Effect of Inventory Errors You are here. | Hard |