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Effect of inventory errors During the taking of its physical inventory on December 31, 20Y3, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. Indicate the effect of the misstatement on Waterjet Bath’s December 31, 20Y3, balance sheet and income statement for the year ended December 31, 20Y3.
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Effect of inventory errors
During the taking of its physical inventory on December 31, 20Y3, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. Indicate the effect of the misstatement on Waterjet Bath’s December 31, 20Y3, balance sheet and income statement for the year ended December 31, 20Y3.
Explain the effect of misstatement on K Industries’ in their balance sheet and income statement items.
Explanation of Solution
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 the goods in transit. These inventory errors affect both the income statement as well as the balance sheet.
The inventory at the year-end is overstated. When inventory is overstated, cost of merchandise sold would be understated. Also, this would have an impact on the income statement items for the year and it would overstate the gross profit, Net Income by $8,780. The balance sheets items would also be affected and it would overstate the current assets, total assets and owner’s equity by $8,780...
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