Effect of Errors in Physical Inventory Fonda Motorcycle Shop sells motorcycles,
ID: 2516844 • Letter: E
Question
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, 20Y1, Fonda incorrectly counted its inventory as $337,500 instead of the correct amount of $328,850.
a. State the effects of the error on the December 31, 20Y1, balance sheet of Fonda Motorcycle Shop.
b. State the effects of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y1.
c. If uncorrected, what would be the effects of the error on the 20Y2 income statement?
d. If uncorrected, what would be the effects of the error on the December 31, 20Y2, balance sheet?
The December 31, 20Y2, balance sheet would be correct, since the 20Y1 inventory error reverses itself in 20Y2.
In the December 31, 20Y2, balance sheet, inventory would be understated.
In the December 31, 20Y2, balance sheet, inventory would be overstated.
In the December 31, 20Y2, balance sheet, retained earnings would be understated
Balance Sheet Items Understated / Overstated Amount Inventory Overstated $ Current Assets Overstated $ Total Assets Overstated $ Stockholders' Equity Overstated $Explanation / Answer
a.
b.
c.
d. If uncorrected, what would be the effects of the error on the December 31, 20Y2, balance sheet?
No effect on Closing Inventory .as December 31, 20Y2 since the 20Y1 inventory error reverses itself in 20Y2.
Balance Sheet Items Understated / Overstated Amount Inventory Understated $8,650 Current Assets Understated $8,650 Total Assets Understated $8,650 Stockholders' Equity Understated $8,650Related Questions
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