Assume that the ending inventory of a merchandising firm is overstated by $40,000. a. By how much and in what direction (overstated or understated) will the firms cost of goods 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 an error and the subsequent period) combined?

Q: fill in the items below, indicating which items will be understated, overstated, or correctly stated

A: Given information is: Assume that in Year 1, the ending merchandise inventory is overstated by…

Q: in its first year of business, Miss Take, the bookkeeper, eroneously recorded a $1,000 period cost…

A: Period cost is also written as fixed cost which remains constant at every level of production.…

Q: Hubble Space Incorporated has the following data which includes inventory conversion period or ICP…

A: Inventory conversion period is the number of days required to convert raw materials into finished…

Q: Which of the following would best explain an decrease in the company's inventory turnover? A. Due…

A: An inventory turnover is defined as the financial ratio, which used to represent how many times the…

Q: Errors were made in each year as follows: in 2020, ending inventory was overstated by $10,600 while…

A: The impact of errors of overstated ending inventory for 2021 profit and owner's equity is shown…

Q: If a company sells goods that cost $80,000 for $92.000, the firm will: A. reduce Finished-Goods…

A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,…

Q: If this were done, by how much would inventories decrease? Ass

A: Information Provided: Inventory = 20,000 COGS = 85,000 ICP (current) = 85.88 Benchmark ICP = 38

Q: If ending inventory is understated by $25,000, what effect will this have on cost of goods sold and…

A: Formula: Cost of goods sold = Beginning inventory + Purchases - Ending Inventory.

Q: If the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have…

A: Inventory Valuation Methods are methods of valuation of inventory. There are three methods of…

Q: If the ending inventory of a firm is overstated by $49,000, by how much and in what direction…

A: Computation of Income: Gross Profit = Sales – COGS COGS = Opening Inventory + Purchases – Closing…

Q: (a) provide the highest net income? (b) result in the most stable earnings over a number of years?…

A: FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the…

Q: A company has an average inventory on hand of P100,000 and the days in inventory are 73 days. What…

A: Days in inventory=Average inventoryCost of goods sold×365 days

Q: Hunter, Inc. uses the LIFO method of inventory costing and is facing the possibility of a LIFO…

A: Concept : It occurs when a company using LIFO inventory valuation method sells more goods old stock…

Q: Malcolm Lee Industries reported the following amounts in its December 31st financial statements:…

A: Understated closing inventory decreases the amount of the current year’s profit whereas overstated…

Q: This is a continuation of problem 15. At December 31, Year 2, Beech Corporation still had the same…

A: Solution to Requirement (1) IFRS reports inventory on basis of lower of the cost or net realizable…

Q: Application of the lower-of-cost-or-market rule results in inconsistency because a company may value…

A: Lower of Cost or market rule states that while estimating value of the company's Inventory it is…

Q: Hubble Space Incorporated has the following data which includes inventory conversion period or ICP…

A: Inventory refers to the goods or items which are stored by the business either for selling or for…

Q: 1.Given a particular set of factsand assumptions, the following pairs of amounts were computed using…

A: LIFO = Last in, First out FIFO = First in, First out A) $20,650 =FIFO$19,400 = LIFO B) $10,650 =…

Q: Project the average inventory balance in Year X and use it to compute the implied ending inventory…

A: The term sales revenue represents gross earnings generated by selling goods and services in the…

Q: Overstating ending inventory in the current year causes net income in the current year to be…

A: 1. True 2. False The weighted-average cost includes both beginning inventory and purchases and is…

Q: Astro Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising…

A: 1. If a company uses the FIFO method and the prices are rising over a period then it means the Cost…

Q: Tristan, Inc., uses the LIFO cost-flow assumption to value inventory. It began the current year with…

A: Particulars No. of units Rate per unit Total cost 9,500 units sold 8,000 $40 $320,000…

Q: the ending inventory of a firm is overstated by $49,000, by how much and in what direction…

A: Solution Concept Mathematically Cost of goods sold       =beginning inventory + purchase – ending…

Q: 1. Merchandise inventory that cost $620000 is reported on the balance sheet at $690000, the expected…

A: 1. As per the cost concept of accounting, merchandise inventory must be recorded at cost in the…

Q: - An analyst observes a decrease in a company's inventory turnover. Which of the following puld most…

A: Solution: Introduction: Inventory turnover ratio measures how well the company's effectiveness in…

Q: Ebbers Corporation overstated its ending inventory balance by $15,000 in the current year. What…

A:

Q: The cost of goods sold for Veltron International last year amounted to $534,600, and the average…

A: The inventory turnover ratio can be calculated by dividing the cost of goods sold by average…

Q: The following statement is TRUE / FALSE (circle one). Under current U.S. GAAP, when a firm using…

A: Cost of goods sold is described as the amount or cost which is incurred by the business to…

Q: The inventory at the end of the year was understatedby $14,750. (a) Did the error cause an…

A: (a)

Q: Which of the following is false? Select one: a. Days’ sales in inventory is equal to the average…

A: Option “B” is False.

Q: You are the manager of a successful retail operation.  Inflation has been running at 3% per year on…

A: In accounting there are different methods that we can use for accounting of inventory. The main…

Q: -8 Effects of inventory error Assume that the ending inventory of a merchandising a 2 firm is…

A: Introduction: Overstated:  Stating the values more than actual values called as Overstated. Stating…

Q: Malcolm Lee Industries reported the following amounts in its December 31st financial statements:…

A: Introduction: Understated values: When the values are shown as lower than actual values called as…

Q: In its first year of business, Miss Take, the bookkeeper, erroneously recorded $10,000 of product…

A: Period costs are not manufacturing costs and are fully expensed in the period which they are…

Q: Malcolm Lee Industries reported the following amounts in its December 31st financial statements:…

A: Introduction: Overstated: The amounts shown higher than the actual values called as overstated. When…

Q: Management of Tarry Company takes the position that under the lower-of-cost-or-market rule, the two…

A: In the lower of cost or market (LCM) inventory valuation method, the inventory of the company…

Q: If the purchases total P240,000 and the ending inventory is bigger than the beginning inventory by…

A: Cost of goods sold  = opening stock  + purchases  - closing stock

Q: If the ending inventory of a firm is overstated by $56,000, by how much and in what direction…

A: The answer is as fallows

Q: Which of the following is false? Select one: a. Day's sales in inventory is equal to the average…

A: The correct option is part (b), that is higher day’s sales in inventory means that inventory is less…

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.