Question

Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its ph 31, 2041, Fonda incorrectly counted its inventory as $452,500 instead of the correct amount of $425,500. a. State the effects of the error on the December 31, 2041, balance sheet of Fonda Motorcycle Shop. Balance Sheet Items Amount Inventory Understated/Overstated Overstated Overstated Current Assets Total Assets Overstated Stockholders' Equity Overstated b. State the effects of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 207 Income Statement Items Understated/Overstated Amount Cost of Goods Sold Understated Gross Profit Overstated Net Income Overstated c. If uncorrected, what would be the effects of the error on the 2012 income statement? Income Statement Items Understated/Overstated Amount Cost of Goods Sold Overstated Gross Profit Understated Net Income Understated : d. If uncorrected what would be the effects of the emne on the December 31 22 balance sheet Check My Work (-Prev BIOGASA07 Powi

Answer 1

Amount of error	27000	=452500-425500
a
Balance sheet items	Understated/Overstated	Amount
Inventory	Overstated	27000
Current Assets	Overstated	27000
Total Assets	Overstated	27000
Stockholders' Equity	Overstated	27000
b
Income statement items	Understated/Overstated	Amount
Cost of goods sold	Understated	27000
Gross profit	Overstated	27000
Net income	Overstated	27000
c
Income statement items	Understated/Overstated	Amount
Cost of goods sold	Overstated	27000
Gross profit	Understated	27000
Net income	Understated	27000
d
The December 31,20Y2 Balance sheet would be correct since the 20Y1 inventory error reverses itself in 20Y2