Homework Answers
overstating inventory means overstating its gross profit and net profits too as cost of goods sold is understated.
retained earning is residual income after payment of dividends if any.
hence due to overstated net income , retained earning of year 1 will also be overstated by $5000.
but for year 2, opening inventories will be high and ultimately cost of goods will be high too.
hence the effect of overstating the inventory in year 1 will be neutral.
hence retained earning amount in balance sheet will be correct at the end of year 2.
hence option A is correct.
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Sierra Corporation:
Using the LCNRV Rule, the proper inventory amount for the balance
sheet is:
Select one:
a. $318
b. $321
c. $312
d. $319
e. $323
2.
Doyle Company discovered in 2019 that the ending inventories
reported on its financial statements were incorrect by the
following amounts:
2017 $60 understated
2018 $75 overstated
Indicate the error in 1/1/19 Retained Earnings:
Select one:
a. No Error
b. $75 Overstated
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