explain the effect an error understanding a firm;s ending inventory will have on the current and...

explain the effect an error understanding a firm;s ending inventory will have on the current and the following year's income statement and balance sheet. Explain in detail.

Solutions

Expert Solution

The effect an error understanding a firms ending inventory will have on current and following years income statement and balance sheet is inf current inventory is overstated due to any reason the profit and loss will be affected.if company understated the closing stock /inventory then cost of goods will be overstated by that amount and also net income and gross profit is also affected l.e understated.such types of mistake affected on current and following financial position of company.

Effects of error in closing inventory.

inventory COGS Gross Profit Net income

overstated understated overstated overstated

understated overstated understated understated

Effects of error in closing stock on financial statement.

If inventory is understated then assets are overstated and there is no impact on liabilities but due to that owners equity also understated and vice versa.

Ending closing inventory automatically become opening stock of following period such inventory error affects computation of cost of goods sold and net profit of company.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Effects of inventory error Assume that the ending inventory of a merchandising firm is overstated by...

Effects of inventory error Assume that the ending inventory of a merchandising firm is overstated by $30,000. Required: a)By how much and in what direction (overstated or understated) will the firm’s cost of goods sold be misstated? b)If this error is not corrected, what effect will it have on the subsequent period’s operating income? c)If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is...

The following data are provided regarding an entities ending inventory year current cost of ending inventory...

The following data are provided regarding an entities ending inventory year current cost of ending inventory cumulative price level 15 250,000 100 16 342,000 120 17 383,500 130 18 375,000 125 19 406,000 140 Calculate ending inventory for each year, 2015 through 2019, inclusive, using the dollar value LIFO method as well as any reported LIFO reserve.

If the ending inventory of a firm is overstated by $55,000, by how much and in...

If the ending inventory of a firm is overstated by $55,000, by how much and in what direction (overstated or understated) will the firm's operating income be misstated? (use the cost of goods sold model, enter hypothetically "correct" data, ann then reflect the effects of the ending inventory error, and determine the effect on cost of goods sold

For each of the following inventory errors occurring in 2018, determine the effect of the error...

For each of the following inventory errors occurring in 2018, determine the effect of the error on 2018's cost of goods sold, net income, and retained earnings using understated (U), overstated (O), or no effect (NE). Assume that the error is not discovered until 2019 and that a periodic inventory system is used. Ignore income taxes. Cost of Net Retained Goods Sold Income Earnings 1. Overstatement of ending inventory 2. Overstatement of purchases 3. Understatement of beginning inventory 4. Freight-in...

Explain the effect(s) that the following will have on the use of ketone bodies in the...

Explain the effect(s) that the following will have on the use of ketone bodies in the human body (each case is independent) a. there is a serum albumin deficiency b. beta-hydroxybutyrate dehydrogenase is inhibited c. beta-ketoacyl-CoA transferase is inhibited d. there is a CoA deficiency e. a compound that is incapable of diffusing into the cell and is highly selective for reactions with ketones (over other carbonyl-containing groups) is released in the bloodstream

1. If a firm uses just-in-time inventory system what effect is that likely to have on...

1. If a firm uses just-in-time inventory system what effect is that likely to have on the number and location of suppliers? (200words) 2. Why might a firm keep a safety stock? What effect is it likely to have on carrying cost of inventory? (200words) 3. Why would a financial manager want to slow down disbursements? (200words)

what would be the effect on the Cost of goods sold, Ending inventory, net income and...

what would be the effect on the Cost of goods sold, Ending inventory, net income and income tax if the prices of inventory are decreasing (deflation). Using LIFO and FIFO

To get average a/r, inventory, etc., take prior year ending + current year ending /(divided) by...

To get average a/r, inventory, etc., take prior year ending + current year ending /(divided) by 2. Use the Figure 8-9 Pinnacle Manufacturing F/S’s to complete the year-to-year changes in account balances for the following (first one completed for example): Account % change 2015 to 2016 % change 2014 to 2015 Net Sales 1.45% 2.70% Cost of Goods Sold Operating Expenses Income from Operations Net Receivables Inventory Accounts payable Long-term debt Calculate the following...

Q1 :- Explain the effects of inventory valuation methods on the cost of ending inventory, income...

Q1 :- Explain the effects of inventory valuation methods on the cost of ending inventory, income and income taxes ? Q2 :- Given the following information, determine the cost of ending inventory at November 30 using the Weighted Average perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75...

Daniel Company uses a periodic inventory system. Data for the current year: beginning merchandise inventory (ending...

Daniel Company uses a periodic inventory system. Data for the current year: beginning merchandise inventory (ending inventory December 31, prior year), 2,130 units at $35; purchases, 7,800 units at $37; expenses (excluding income taxes), $193,200; ending inventory per physical count at December 31, current year, 1,690 units; sales, 8,240 units; sales price per unit, $76; and average income tax rate, 30 percent. Required information Required: 1. Compute cost of goods sold and prepare income statements under the FIFO, LIFO, and...

Subjects