Question

Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 2018, Madison incorrectly counted its inventory as $772,230 instead of the correct amount of $795,400. Enter all amounts as positive numbers. a. State the effects of the error on the December 31, 20Y8, balance sheet of Madison River Supply. Balance Sheet Items Understated/Overstated Amount Inventory Current Assets Total Assets Stockholders' Equity b. State the effects of the error on the income statement of Madison River Supply for the year ended December 31, 20Y8. Income Statement Items Overstated/Understated Amount Cost of Goods Sold Gross Profit Net Income c. If uncorrected, what would be the effects of the error on the 2049 income statement? Overstated / Understated Amount Income Statement Items Cost of Goods Sold A Gross Profit A Net Income A d. If uncorrected, what would be the effects of the error on the December 31, 2049, balance sheet? 1. The balance sheet would be correct, because the 20Y8 inventory error reverses itself in 2019. 2. The income for 2049 would be understated. 3. The current assets in 2019 would be overstated. 4. The current assets in 2019 would be understated.

Answer 1

Amount of error	23170	=795400-772230
a
Balance Sheet items	Understated/Overstated	Amount
Inventory	Understated	23170
Current assets	Understated	23170
Total assets	Understated	23170
Stockholders' Equity	Understated	23170
b
Income Statement items	Understated/Overstated	Amount
Cost of goods sold	Overstated	23170
Gross Profit	Understated	23170
Net income	Understated	23170
c
Income Statement items	Understated/Overstated	Amount
Cost of goods sold	Understated	23170
Gross Profit	Overstated	23170
Net income	Overstated	23170
d
The Balance sheet would be correct,because the 20Y8 inventory error reverses itself in 20Y9