A retail company recently completed a physical count of ending merchandise inventory to use in preparingadjusting entries. In determining the cost of the counted inventory, company employees failed to considerthat $3.000 of ineoming goods had been shipped by a supplier on December 31 under an FOB shippingpoint agreement. These goods had been recorded in Merchandise Inventory as a purchase, but rhey werenor included in the physical count because they were in transit.a. Explain how this overlooked fact impacts the company's balance sheet and income statement.b. Indicate whether this overlooked fact results in an overstatement. understatement, or no effect on thefollowing separate ratios: return on assets, debt ratico. current ratio, and acid-test ratio.Exercise 5-12Interpreting a physicalcount error as inventoryshrinkageA1CS Scanned with CamScanner

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Description: A retail company recently completed a physical count of ending merchandise inventory to use in preparingadjusting entries. In determining the cost of the counted inventory, company employees failed to considerthat $3.000 of ineoming goods had been s

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A retail company recently completed a physical count of ending merchandise inventory to use in preparing adjusting entries. In determining the cost of the counted inventory, company employees failed to consider that $3.000 of incoming goods had been shipped by a supplier on December 31 under an FOB shipping point agreement. These goods had been recorded in Merchandise Inventory as a purchase, but they were noi included in the physical counı because they were in transit. a. Explain how this overlooked fact impacts the company's balance sheet and income statement. b. Indicate whether this overlooked fact results in an overstatement, understatement, or no effect on the following separate ratios: return on assets, debt ratio, current ratio, and acid-test ratio.

A retail company recently completed a physical count of ending merchandise inventory to use in preparing adjusting entries. In determining the cost of the counted inventory, company employees failed to consider that $3.000 of incoming goods had been shipped by a supplier on December 31 under an FOB shipping point agreement. These goods had been recorded in Merchandise Inventory as a purchase, but they were noi included in the physical counı because they were in transit. a. Explain how this overlooked fact impacts the company's balance sheet and income statement. b. Indicate whether this overlooked fact results in an overstatement, understatement, or no effect on the following separate ratios: return on assets, debt ratio, current ratio, and acid-test ratio.

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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Confused on how to Determine the cost assigned to ending inventory and to cost of goods sold using FIFO.and how to Determine the cost assigned to ending inventory and to cost of goods sold using LIFO.
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