The count of ending inventory at 12/31/x6 was understated by $40,000. The error was discovered in...
The count of ending inventory at 12/31/x6 was understated by $40,000. The error was discovered in 20x7. Choose the correct statement. PPA = prior period adjustment.
-credit a PPA in 20x7
-credit a PPA in 20x6
-no JE is needed but restate the 20x6 statements
-debit a PPA in 20x7
-debit CGS in 20x7
Homework Answers
The count of ending inventory at 12/31/x6 was understated by $40,000. This error would be corrected in 2007.
Since ending inventory of 2006 was understated, it means profit of 2006 was understated. If inventory had been correctly valued, profit of year 2006 would have been more by $40,000.
Hence, in 2007, retained earnings would be credited by $40,000 and inventory would be debited by $40,000.
Thus, correct option is (d)
-debit a PPA in 20x7
Kindly comment if you need further assistance. Thanks
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