2. Gabriela Company’s auditor discovered that the company inadvertently overstated ending Inventory for the prior year. If the error is not corrected, what effect will the error have on the following financial statement items for both the prior year and the current year? Indicate in each box a “+" (plus) if the item is overstated, a “-“ (minus) if the item is understated, and a "N/A" if there is no effect on the item. Prior Current Year Year Effect on Income Statement Goods Available for Sale Cost of Goods Sold Gross Profit Net Income Effect on Balance Sheet Inventory on 12/31 Retained Earnings

2. Gabriela Company’s auditor discovered that the company inadvertently overstated ending Inventory for the prior year. If the error is not corrected, what effect will the error have on the following financial statement items for both the prior year and the current year? Indicate in each box a “+" (plus) if the item is overstated, a “-“ (minus) if the item is understated, and a "N/A" if there is no effect on the item. Prior Current Year Year Effect on Income Statement Goods Available for Sale Cost of Goods Sold Gross Profit Net Income Effect on Balance Sheet Inventory on 12/31 Retained Earnings

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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During the taking of the physical inventory, the company inadvertently counted its inventory as $89,000 instead of the correct amount of $87,000. Indicate the effect of the misstatement on the balance sheet of the current year. a.Stockholders' equity is understated by $2,000. b.Stockholders' equity is overstated by $2,000. c.Liabilities are overstated by $2,000. d.Assets are understated by $2,000.
What is the effect of a $51000 overstatement of last year's inventory on current years ending retained earning balance? Overstated by $51000. No effect. Understated by $51000. Need more information to determine.
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Kari Downs, an auditor with Wheeler CPAs, is performing a review of Sheridan Company's inventory account. Sheridan did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $731,000. However, the following information was not considered when determining that amount. (a1) Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number, e.g. -15,000, or parenthesis e.g. (15,000). Enter 0 if there is no effect.) 1. Ending inventory-as reported Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Kroeger Corporation. 2. The physical count did not include goods purchased by Sheridan with a cost of $31,000 that were shipped FOB destination on December 28 and did not arrive at Sheridan warehouse until January 3. 3. Included in the…
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