Effect of Errors in Physical Inventory Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as $780,650 instead of the correct amount of $804,070. Enter all amounts as positive numbers. a. State the effect of the error on the December 31, 20Y2, balance sheet of Missouri River Supply. Balance Sheet Items Understated/Overstated Amount Merchandise Inventory Understated $ Current Assets Overstated Total Assets Understated Owner's Equity b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2. Income Statement Items Overstated/Understated Amount Cost of Merchandise Sold Overstated $ Gross Profit Net Income c. If uncorrected, what would be the effect of the error on the 20Y3 income statement? Income Statement Items Overstated/Understated Amount Cost of Merchandise Sold $ Gross Profit Net Income d. If uncorrected, what would be the effect of the error on the December 31, 20Y3, balance sheet? The December 31, 20Y3, balance sheet would be correct, since the 20Y2 inventory error reverses itself in 20Y3. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error overstates the beginning inventory in20Y3. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error understates the beginning inventory in 20Y3.
Effect of Errors in Physical Inventory Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as $780,650 instead of the correct amount of $804,070. Enter all amounts as positive numbers. a. State the effect of the error on the December 31, 20Y2, balance sheet of Missouri River Supply. Balance Sheet Items Understated/Overstated Amount Merchandise Inventory Understated $ Current Assets Overstated Total Assets Understated Owner's Equity b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2. Income Statement Items Overstated/Understated Amount Cost of Merchandise Sold Overstated $ Gross Profit Net Income c. If uncorrected, what would be the effect of the error on the 20Y3 income statement? Income Statement Items Overstated/Understated Amount Cost of Merchandise Sold $ Gross Profit Net Income d. If uncorrected, what would be the effect of the error on the December 31, 20Y3, balance sheet? The December 31, 20Y3, balance sheet would be correct, since the 20Y2 inventory error reverses itself in 20Y3. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error overstates the beginning inventory in20Y3. The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error understates the beginning inventory in 20Y3.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Effect of Errors in Physical Inventory
Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as $780,650 instead of the correct amount of $804,070.
Enter all amounts as positive numbers.
a. State the effect of the error on the December 31, 20Y2,
| Balance Sheet Items | Understated/Overstated | Amount |
| Merchandise Inventory | Understated | $ |
| Current Assets | Overstated | |
| Total Assets | Understated | |
| Owner's Equity |
b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2.
| Income Statement Items | Overstated/Understated | Amount |
| Cost of Merchandise Sold | Overstated | $ |
| Gross Profit | ||
| Net Income |
c. If uncorrected, what would be the effect of the error on the 20Y3 income statement?
| Income Statement Items | Overstated/Understated | Amount |
| Cost of Merchandise Sold | $ | |
| Gross Profit | ||
| Net Income |
d. If uncorrected, what would be the effect of the error on the December 31, 20Y3, balance sheet?
- The December 31, 20Y3, balance sheet would be correct, since the 20Y2 inventory error reverses itself in 20Y3.
- The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error overstates the beginning inventory in20Y3.
- The December 31, 20Y3, balance sheet would be incorrect, since the 20Y2 inventory error understates the beginning inventory in 20Y3.
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