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Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result:

Required: Using the information given in the first paragraph of this problem, read each statement and circle either UNDERSTATED or OVERSTATED as the effect of the error. Also calculate the total effect on cost of goods sold and put it in a blank in statement D.

A. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of beginning inventory.

B. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of ending inventory.

C. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of purchases.

D. Total cost of goods sold for this year was UNDERSTATED or OVERSTATED by_________.

E. Net income for this year was UNDERSTATED or OVERSTATED.

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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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 $

Zenkins Inc. made errors in their 2014 and 2015 recordings thataffected their merchandise inventory. During 2014 the endinginventory was overstated $5,000 and purchase returns &allowances for 2014 were understated $1,200. During 2015 purchaseswere overstated $3,500 and the ending 2015 merchandise inventorywas understated $2,000. Assume that the above is the only errorsmade and that none of these errors were corrected during 2014 and2015.

Required:

What is the dollar amount effect on the cost of goods sold andgross profit for 2014?

What is the dollar amount effect on gross profit and retainedearnings for 2015?1. Zenkins Inc. made errors in their 2014 and2015 recordings that affected their merchandise inventory. During2014 the ending inventory was overstated $5,000 and purchasereturns & allowances for 2014 were understated $1,200. During2015 purchases were overstated $3,500 and the ending 2015merchandise inventory was understated $2,000. Assume that the aboveis the only errors made and that none of these errors werecorrected during 2014 and 2015.

Required:

What is the dollar amount effect on the cost of goods sold andgross profit for 2014?

What is the dollar amount effect on gross profit and retainedearnings for 2015?

51. The number of shares of authorized stock of acorporation:

a. must be recorded as a journal entry.

b. changes every time stock is sold.

c. has no limit.

d. is stated in the charter.

52. If ending inventory is understated for Year 1, then in Year2:

a. cost of goods sold and gross profit will both beunderstated.

b. cost of goods sold will be understated and gross profit willbe overstated.

c. cost of goods sold and gross profit will both beoverstated.

d. cost of goods sold will be overstated and gross profit willbe understated.

What are the answers? please let me know!

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