Assume that the ending inventory of a merchandising firm is overstated by $40,000. a. By how much and in what direction (overstated or understated) will the firms cost of goods be misstated? b. If this error is not corrected, what effect will it have on the subsequent period's operating income? c. If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is an error and the subsequent period) combined?

Q: O In the case of flat-rate write-offs on receivables, the sales tax must also be corrected. O All…

A: Production cost refers to the expenses involved while producing a certain product.

Q: If ending inventory is understaffed for year 1, then in year 2…. A. Costa of goods sold and gross…

A: Inventory is the term used in accounting which refers to the goods as well as materials that the…

Q: If ending inventory is understated in the current fiscal year, what effect will this have on net…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Which of the following statements is true for a company using the periodic inventory method? A.…

A: Inventory valuation is referred to as that method which helps in assigning a monetary value to the…

Q: The work paper in the year of sale to eliminate unrealized intercompany profit in ending: a. Credit…

A: Inter transaction- It includes those transaction which are incurred within the subsidiary and…

Q: Compare the financial effects (ignore income tax) of using period of declining prices on the…

A: Depreciation is the process of reducing the value of the assets. It is a non-cash expense of the…

Q: Which one of the following inventories may not be valued for balance sheet purposes at the…

A: Inventory is valued only at lower of Cost or Net realizable value(which is the selling price minus…

Q: a) Compare the periodic versus the perpetual system as a control device. b) What sort of…

A: The periodic and perpetual inventory Systems are two systems used to track the quantity of goods…

Q: Which of the following is not a disadvantage of using the FIFO cost flow assumption? includes all…

A: Lets understand the basics.There are various methods follow to calculate inventory balance. It…

Q: Why might a company estimate ending inventory instead of performing a physical count? O The…

A: Ending inventory counting and valuation helps a business to know value of inventory still available…

Q: If the dollar amount in ending accounts payable is greater than the dollar amount in beginning…

A: Solution- Accounts payable are amounts due to vendors or suppliers for goods or services received…

Q: Sales Returns Which of the following statements is true relating to the allowance for sales returns?…

A: Sales return & allownace :— It is the amount of goods returned by customer due to receive of…

Q: Companies set reorder points based upon what criterion?   a. All of these choices…

A: The reorder point is a predetermined level of inventory when a company should place a new order or…

Q: During a period of rising inventory prices, a company's cost of goods sold would be higher using the…

A: LIFO means last in first out where as FIFO means first in first out.Inventory and cost of goods sold…

Q: Which of the following is an example of a conservative accounting practice? a. Estimate the…

A: Introduction:   Conservative accounting practices refers to the accounting practices which tend to…

Q: 11. What is the effect on cost of goods sold, gross profit, and net income if ending mer- chandise…

A: Error in inventory recording can be cancelled or we can say nullified within two consecutive…

Q: Overstating ending inventory in the current year causes net income in the current year to be…

A: 1. True 2. False The weighted-average cost includes both beginning inventory and purchases and is…

Q: Compare the financial effects (ignore income tax) of using the FIFO and average inventory cost…

A: FIFO FIFO Means First in, First Out. It is one of the Important Method of Valuation of Inventory.…

Q: Companies set reorder points based upon what criterion?   a. All of these choices…

A: The reorder point is a predetermined level of inventory when a company should place a new order or…

Q: Amber Auto Parts adopted the dollar-value LIFO inventory method. The company has consistently used a…

A: LIFO stands for Last-In, First-Out, and assumes that the most recently acquired inventory is the…

Q: If beginning inventory is understated, then: a. goods available for sale will be overstated. b.…

A: The cost of goods sold represents the direct costs of producing goods or purchasing them for resale…

Q: 1. In a period of rising prices, the inventory reported in Huang Company's balance sheet is close to…

A: Note: As per our guidelines, only the first question shall be answered.   1. The FIFO technique is…

Q: A list of errors is shown below: Show the effects of the errors on the indicated balance sheet and…

A: solution The answer is presented in the table below

Q: During times of deflation , LIFO will provide the highest closing inventory figure and the highest…

A: A drop in the overall price level of products and services is referred to as deflation. When the…

Q: ts) An auditor recently asked an accounting manager to perform a LCM test on a batch of inventory.…

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Q: A company follows the LIFO inventory method and is experiencing rising costs. What impact will this…

A: When a company follows the LIFO inventory method and experiences rising costs, the ending inventory…

Q: Indicate by a (1), (2), or (0) whether each of the following events wouldprobably cause average…

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Q: The management of Milque Corp. is considering the effects of inventory-costing methods on its…

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Q: 3. What is the purpose of the current ratio? Assume that Island Solutions want to compute its…

A: The current ratio is a financial metric that measures a company's ability to cover its short-term…

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.