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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

An understatement of ending inventory in the year 20-1 will cause the owner’s equity account at the end of the year 20-2, assuming no other errors, to be

  1. (a) understated.
  2. (b) correctly stated.
  3. (c) overstated.
  4. (d) none of the above.

To determine

Determine the effect of understated ending inventory in the year 20-1, on the owner’s equity account at the year 20-2 (Assuming no other errors).

Explanation

Ending inventory: Ending inventory is the amount of those merchandise goods or raw materials available at the end of accounting period.

Justification for correct answer:

Option b:

Inventory is recorded in two financial statements. One is balance sheet and the other is income statement. In the balance sheet, inventory is reported in the asset column. Thus, the understatement of inventory does not has any impact on the owners’ equity...

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