BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

Solutions

Chapter
Section
BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
3 views

Effects of an Inventory Error

The income statements for Graul Corporation for the 3 years ending in 2019 appear below.

Chapter 6, Problem 71APSA, Effects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in

During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly.

a. A purchase return of inventory costing $42,000 was recorded twice.

b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017.

Required:

1. Was ending inventory for 2017 overstated or understated? By how much?

2. Prepare correct income statements for all 3 years.

3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response.

4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?

To determine

(a)

Error in Inventory:

The effect of incorrect inventory will be seen on the balance sheet as well as income statement. The value which is understated or overstated the closing inventory will affect the gross margin and in turn affect the net income.

The effect of error in recording on the ending inventory.

Explanation

The incorrect transactions which were recorded in 2017 and their effect:

The return of purchase of amount $42000 recorded twice which means the inventory is understated by $42000

To determine

(b)

Error in Inventory:

The effect of incorrect inventory will be seen on the balance sheet as well as income statement. The value which is understated or overstated the closing inventory will affect the gross margin and in turn affect the net income.

The income statements for all 3 years.

To determine

(c)

Error in Inventory:

The effect of incorrect inventory will be seen on the balance sheet as well as income statement. The value which is understated or overstated the closing inventory will affect the gross margin and in turn affect the net income.

The response about the error which will affect cumulative net income.

To determine

(d)

Error in Inventory:

The effect of incorrect inventory will be seen on the balance sheet as well as income statement. The value which is understated or overstated the closing inventory will affect the gross margin and in turn affect the net income.

The reason for no effect on the income of 2019.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are the advantages and disadvantages of using committees?

Foundations of Business (MindTap Course List)

What is natural language processing?

Fundamentals of Information Systems

What does the term 3 Vs refer to?

Database Systems: Design, Implementation, & Management

What are the basic characteristics of a NoSQL database?

Database Systems: Design, Implementation, & Management

Give examples of MATLAB conditional statements

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

List three bonding agents used for aluminum oxide and silicon carbide wheels.

Precision Machining Technology (MindTap Course List)

What will result from too little EGR flow? And what can cause a reduction in the flow?

Automotive Technology: A Systems Approach (MindTap Course List)

Neglecting the weight of the frame, find the tension in cable CD.

International Edition---engineering Mechanics: Statics, 4th Edition

Explain how companies, websites, and employers might infringe on your right to information privacy.

Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List)