Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y8, Madison incorrectly counted its inventory as $590,660 instead of the correct amount of $608,380. Enter all amounts as positive numbers. a. State the effects of the error on the December 31, 20Y8, balance sheet of Madison River Supply. Balance Sheet Items Understated/Overstated Amount Inventory Understated $ Current Assets Understated $ Total Assets Understated $ Stockholders’ Equity Understated $ b. State the effects of the error on the income statement of Madison River Supply for the year ended December 31, 20Y8. Income Statement Items Overstated/Understated Amount Cost of Goods Sold Overstated $ Gross Profit Understated $ Net Income Understated $ c. If uncorrected, what would be the effects of the error on the 20Y9 income statement? Income Statement Items Overstated / Understated Amount Cost of Goods Sold Understated $ Gross Profit Overstated $ Net Income Overstated $ d. If uncorrected, what would be the effects of the error on the December 31, 20Y9, balance sheet? The balance sheet would be correct, because the 20Y8 inventory error reverses itself in 20Y9. The income for 20Y9 would be understated. The current assets in 20Y9 would be overstated. The current assets in 20Y9 would be understated.

Name: Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and o
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Description: Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y8, Madison incorrectly counted its inventory as $590,660 instead of the correct amount of $608

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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Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y8, Madison incorrectly counted its inventory as $590,660 instead of the correct amount of $608,380.

Enter all amounts as positive numbers.

a. State the effects of the error on the December 31, 20Y8, balance sheet of Madison River Supply.

Balance Sheet Items	Understated/Overstated	Amount
Inventory	Understated	$
Current Assets	Understated	$
Total Assets	Understated	$
Stockholders’ Equity	Understated	$

b. State the effects of the error on the income statement of Madison River Supply for the year ended December 31, 20Y8.

Income Statement Items	Overstated/Understated	Amount
Cost of Goods Sold	Overstated	$
Gross Profit	Understated	$
Net Income	Understated	$

c. If uncorrected, what would be the effects of the error on the 20Y9 income statement?

Income Statement Items	Overstated / Understated	Amount
Cost of Goods Sold	Understated	$
Gross Profit	Overstated	$
Net Income	Overstated	$

d. If uncorrected, what would be the effects of the error on the December 31, 20Y9, balance sheet?

The balance sheet would be correct, because the 20Y8 inventory error reverses itself in 20Y9.
The income for 20Y9 would be understated.
The current assets in 20Y9 would be overstated.
The current assets in 20Y9 would be understated.

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