Effect of Errors in Physical Inventory Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 20Y8, Fonda Motorcycle Shop incorrectly counted its inventory as $445,740 instead of the correct amount of $427,910. Enter all amounts as positive numbers. a. State the effect of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop. Balance Sheet Items Overstated/Understated Amount Merchandise Inventory Current Assets Total Assets Owner's Equity b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y8. Income Statement Items Cost of Merchandise Sold Gross Profit Net Income Overstated/Understated Amount c. If uncorrected, what would be the effect of the error on the 20Y9 income statement? Income Statement Items Understated/Overstated Amount $ Cost of Merchandise Sold Gross Profit Net Income d. If uncorrected, what would be the effect of the error on the December 31, 20Y9, balance sheet? 1. The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in 20Y9. 2. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error understates the inventory in 2019. 3. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error overstates the inventory in 2019.
Effect of Errors in Physical Inventory Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 20Y8, Fonda Motorcycle Shop incorrectly counted its inventory as $445,740 instead of the correct amount of $427,910. Enter all amounts as positive numbers. a. State the effect of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop. Balance Sheet Items Overstated/Understated Amount Merchandise Inventory Current Assets Total Assets Owner's Equity b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y8. Income Statement Items Cost of Merchandise Sold Gross Profit Net Income Overstated/Understated Amount c. If uncorrected, what would be the effect of the error on the 20Y9 income statement? Income Statement Items Understated/Overstated Amount $ Cost of Merchandise Sold Gross Profit Net Income d. If uncorrected, what would be the effect of the error on the December 31, 20Y9, balance sheet? 1. The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in 20Y9. 2. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error understates the inventory in 2019. 3. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error overstates the inventory in 2019.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Effect of Errors in Physical Inventory
Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of
its physical inventory on December 31, 20Y8, Fonda Motorcycle Shop incorrectly counted its inventory as
$445,740 instead of the correct amount of $427,910.
Enter all amounts as positive numbers.
a. State the effect of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop.
Balance Sheet Items
Overstated/Understated
Amount
Merchandise Inventory
Current Assets
Total Assets
Owner's Equity
b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December
31, 20Y8.
Income Statement Items
Cost of Merchandise Sold
Gross Profit
Net Income
Overstated/Understated
Amount
c. If uncorrected, what would be the effect of the error on the 20Y9 income statement?
Income Statement Items
Understated/Overstated
Amount
$
Cost of Merchandise Sold
Gross Profit
Net Income
d. If uncorrected, what would be the effect of the error on the December 31, 20Y9, balance sheet?
1. The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in
20Y9.
2. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error understates the
inventory in 2019.
3. The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error overstates the
inventory in 2019.
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