For each of the following inventory errors occurring in 2021, determine the effect of the error on 2021'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 2022 and that a periodic inventory system is used. Ignore income taxes. Cost of Goods Retained Net Income Sold Earnings 1. Overstatement of ending inventory U 2. Overstatement of purchases 3. Understatement of beginning inventory 4. Freight-in charges are understated 5. Understatement of ending inventory 6 Understatement of purchases 7. Overstatement of beginning inventory 8. Understatement of purchases plus understatement of ending inventory by the same amount
For each of the following inventory errors occurring in 2021, determine the effect of the error on 2021'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 2022 and that a periodic inventory system is used. Ignore income taxes. Cost of Goods Retained Net Income Sold Earnings 1. Overstatement of ending inventory U 2. Overstatement of purchases 3. Understatement of beginning inventory 4. Freight-in charges are understated 5. Understatement of ending inventory 6 Understatement of purchases 7. Overstatement of beginning inventory 8. Understatement of purchases plus understatement of ending inventory by the same amount
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter6: Cost Of Goods Sold And Inventory
Section: Chapter Questions
Problem 28CE: Inventory Errors McLelland Inc. reported net income of $175,000 for 2019 and $210,000 for 2020....
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:
9781337794756
Author:
HEINTZ, James A.
Publisher:
Cengage Learning,
Financial Accounting
Accounting
ISBN:
9781337272124
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning