Question

accountant for Susan company made the following areas related to inventory in 20

The accountant for Suzanne Company made the following errors related to inventory in 2017 1. The beginning inventory for 2017 was overstated by $1,375 due to an error in the physical count. 2. A $1,650 purchase of merchandise on credit in 2017 was not recorded or included in the ending inventory Assuming a periodic inventory system, how would Sue's costs of goods sold, gross profit, and net income be affected in 2017 by these errors? Set Cost of Goods Sold Gross Profit Net Income Overstated Understated Understated Overstated Understated No Effect Understated Overstated Overstated IV. No Effect No Effect No Effect Select one ca. Set il b. Seti C. Set IV hd Set II

Answer 1

- - cost of goods sold (COGS) Opening inventory + purchases – closing stock - - of goods sold Gross profit sales - cost Net Income Gross poofit - operating expenses * opening inventory was overstated by $1375 which leads to overstatement of COGS. But due to omission of purchases worth $1650 the COGS will be understated by $275 (1650-1375) * Understatement overstatement Income. of of COGS will Gross profit lead to and Net * since, COGS is an of expenses will Incomes. expenditure, understatement of lead to overstatement of Answer D set I.