Question

Emect of Errors in sical entory poles and c ares. During the taking of its physical inventory on December 31, 2018. Fondatore she income counted it intory as 1202.150 instead of the correct Fonda Motorcyde Shop sells motorcydes, ATVs, and other related amount of $194,060. Enter amounts as posve numbers a. State the effect of the error on the December 310 , balance sheet of Fonda Motorcycle Shop Balance Sheet Items Overstated/Understated Merchandisewentory Current Totusets Owner's Equity state the effect of the the m e of Fonda Motor Shoe Income Statements m ent 6. Incorrected, what would be the effect of the other com dered Como Merchandised Net Income n nce in The December 31, 2013, Balance she would be co The Decembr o , come trere under inventore ver the way to the ory is the

Answer 1

Correct inventory = $194,060

Incorrect inventory = $202,150

Overstated inventory = Incorrect inventory - Correct inventory

= $202,150 - $194,060

= $8,090

a. Effects of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop.

Balance Sheet Items	Overstated / Understated	Amount
Inventory	Overstated	$8,090
Current Assets	Overstated	$8,090
Total Assets	Overstated	$8,090
Stockholders’ Equity	Overstated	$8,090

b. Effects of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y8.

Income Statement Items	Overstated / Understated	Amount
Cost of Goods Sold	Understated	$8,090
Gross Profit	Overstated	$8,090
Net Income	Overstated	$8,090

c. If uncorrected, Effects of the error on the 20Y9 income statement

Income Statement Items	Understated / Overstated	Amount
Cost of Goods Sold	Overstated	$8,090
Gross Profit	Understated	$8,090
Net Income	Understated	$8,090

d. If uncorrected, the effects of the error on the December 31, 20Y9, balance sheet would be as under:

The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in 20Y9.

Hence, correct option is 1.

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