Question

on Completion Status: wing to another question will save this response Question 31 of 32 4 points Save Ans Smile Inc. bean business on January 1, 20XX. During the year, Smile purchased inventory for resale. Smile paid $50,000 in freight charges on these merchandise purchases. During 20XX, Smile sold all its inventory. The company paid $20,000 in freight on these sales After the financial statements for 20XX were released, it was discovered that the $50,000 freight paid on merchandise purchases was inadvertently misclassified as freight paid on merchandise sales (freight-out) is the effect (overstated, understated or no ellect) and the dollar amount (50, 520,000, 550,000) on each account listed below? Effect 5 Amount 5:01 PM 7/12/202 O IT Type here to search (hp

Answer 1

Account Effect Amount Reasons Cost of goods sold Understated $ 50,000 Freight out charges shall not included in cost of goods sold Gross Profit Overstated $ 50,000 When cogs was understated, it results in overstated of gross profit Operating expenses Overstated $ 50,000 Because of mistake in reclassifiaction, operating expenses overstated Net Income Nil $ No effect