Chapter 8, Problem 21GI

Indicate the effect of each of the following errors on the following balance sheet and income statement items for the current and succeeding years: beginning inventory, ending inventory, accounts payable, retained earnings, purchases, cost of goods sold, net income, and earnings per share.

1. a. The ending inventory is overstated.
2. b. Merchandise purchased on account and received was not recorded in the purchases account until the succeeding year although the item was included in inventory of the current year.
3. c. Merchandise purchased on account and shipped FOB shipping point was not recorded in either the purchases account or the ending inventory.
4. d. The ending inventory was understated as a result of the exclusion of goods sent out on consignment.