At the end of the last fiscal period (December 2016), employees for Trans-Canada Distributors counted all merchandise on hand. However, a complete section of the warehouse was missed when the inventory was taken. The cost of the merchandise that was not included in the ending inventory figure was $7500. a. What is the effect of this error on the income statement and balance sheet prepared at the end of 2016? Explain. b. If the error went undiscovered, would the net income at the end of 2017 be too high or too low? Explain. c. Over the two-year period, what is the total error in the net income (assuming the second year's inventory is done correctly)? Why?

At the end of the last fiscal period (December 2016), employees for Trans-Canada Distributors counted all merchandise on hand. However, a complete section of the warehouse was missed when the inventory was taken. The cost of the merchandise that was not included in the ending inventory figure was $7500. a. What is the effect of this error on the income statement and balance sheet prepared at the end of 2016? Explain. b. If the error went undiscovered, would the net income at the end of 2017 be too high or too low? Explain. c. Over the two-year period, what is the total error in the net income (assuming the second year's inventory is done correctly)? Why?

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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