Determine the effect on a company’s Assets and Net Income from the following transaction: a loss on inventory is recorded as an adjusting entry.
Assets | Net Income | |
---|---|---|
A | Decreased | Decreased |
B | Decreased | No effect |
C | Increased | No effect |
D | Increased | Increased |
E | None of the above |
A company discovered in Year 3 that the following inventory errors had occurred:
Determine the effect those errors would have on the Year 1 and Year 2 financial statements:
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 |