Question
Asked Dec 13, 2019
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During the taking of its physical inventory on August 31, 2019, Kate Interiors Company incorrectly counted its inventory as $366,900 instead of the correct amount of $378,500. Indicate the effect of the misstatement on Kate Interiors’ August 31, 2019, balance sheet and income statement for the year ended August 31, 2019.

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Expert Answer

Step 1

Inventory error:

Inventory errors are sometimes caused by making mistake, in physical count, in pricing the inventory correctly, or in recognizing the transfer of title for goods on transit. These errors affect both the income statement as well as the balance sheet.

Step 2

Indicate the effect of misstatement on K industries’ in thei...

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Amount of Misstatement Overstatement (Understatement) Balance sheet: Merchandise Inventory (understated) (1) $ (11,600) $ (11,600) Current assets (understated) $ (11,600) Total assets (understated) $ (11,600) Owner's equity (understated) Income statement: $ 11,600 Cost of merchandise sold (overstated) $ (11,600) Gross profit (understated) Net Income (understated) $ (11,600)

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Financial Accounting

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