If the beginning merchandise inventory was understated $8,000 in 2014, purchases

Question

If the beginning merchandise inventory was understated $8,000 in 2014, purchases were overstated $6,000 in 2014 and the ending merchandise inventory was overstated $10,000 in 2015. Assume that no corrections were made during 2014 or 2015. All other items in the income statement were correct.

Required:

What affect does this have on the cost of goods sold and net income for 2014 in dollars understated or overstated?

What affect does this have on net income and retained earnings in dollars understated or overstated for 2015?

NOTE: Be sure to show all your calculations. This has the possibility of partial credit. Incorrect answers without calculations will automatically result in zero points.

Explanation / Answer

Effect on 2014 COGS Net Income Retained Earnings Beginning merchandise understated by 8000 Understated by 8000 Over stated by 8000 Over stated by 8000 Purchases were overstated by 6,000 Over stated by 6000 Understated by 6000 Understated by 6000 Net Effect in 2014 Under statement by $ 2000 Over statement by $ 2000 Over statement by $ 2000 2015 Ending   merchandise overstated by 10000 Understated by 10000 Over stated by 10000 Over stated by 10000 Net Effect of all the three @ end of 2015 Understated by 12000 Over stated by 12000 Over stated by 12000

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