How do the different inventory methods directly effect net income (on the income statement) & the Balance Sheet? How do changes to the Balance Sheet effect the business?

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Lelia LubowitzLv2

28 Sep 2019

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For each of the following potential unrecorded liabilities, determine the effects of the omission on both the balance sheet and income statement of the client. Assume that the inventories recorded on the balance sheet reflect the results of a year-end (December 31) physical inventory. (If there is no effect select "No effect" from dropdown.)

An invoice for $3,000 worth of inventory items, dated January 1 and bearing terms of FOB destination, was not recorded. The goods were shipped December 27 and were received on December 30.

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An invoice for $5,500 worth of inventory items, dated December 30 and bearing terms of FOB destination, was not recorded. The goods were shipped December 28 and received January 2.

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An invoice for $8,000 for a delivery truck, dated January 2 and bearing terms of FOB shipping point, was not recorded. The truck was shipped December 30 and received on January 3.

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greenzebra831

Effect of Errors in Physical Inventory Eclipse Motorcycle Shopsells motorcycles, ATVs, and other related supplies andaccessories. During the taking of its physical inventory onDecember 31, 2014, Eclipse Motorcycle Shop incorrectly counted itsinventory as $262,400 instead of the correct amount of $251,900.Enter all amounts as positive numbers. a. State the effect of theerror on the December 31, 2014, balance sheet of Eclipse MotorcycleShop. Balance Sheet Items Overstated / Understated AmountMerchandise Inventory $ Current Assets $ Total Assets $ Owner'sEquity $ b. State the effect of the error on the income statementof Eclipse Motorcycle Shop for the year ended December 31, 2014.Income Statement Items Overstated / Understated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $ c. If uncorrected,what would be the effect of the error on the 2015 income statement?Income Statement Items Understated / Overstated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $

taupeturtle806

Effect of Errors in Physical Inventory

Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2016, Fonda Motorcycle Shop incorrectly counted its inventory as $337,500 instead of the correct amount of $328,850.

Enter all amounts as positive numbers.

a. State the effect of the error on the December 31, 2016, balance sheet of Fonda Motorcycle Shop.

Balance Sheet Items	Understated / Overstated	Amount
Merchandise Inventory	Overstated	$
Current Assets	Overstated	$
Total Assets	Overstated	$
Owner's Equity	Overstated	$

b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 2016.

Income Statement Items	Understated / Overstated	Amount
Cost of Merchandise Sold	Understated	$
Gross Profit	Overstated	$
Net Income	Overstated	$

c. If uncorrected, what would be the effect of the error on the 2017 income statement?

Income Statement Items	Understated / Overstated	Amount
Cost of Merchandise Sold	Overstated	$
Gross Profit	Understated	$
Net Income	Understated	$

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