Inventory (Overtated or Understated)?

Accounting
Tutor: None Selected Time limit: 1 Day

The beginning merchandise inventory was overstated $10,000 in 2014, purchases were understated $7,000 in 2014 and the ending merchandise inventory was understated $12,000 in 2015. Assume that no corrections were made during 2014 or 2015. All other items in the income statement were correct.

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 in retained earning in dollars, over or understated?

Oct 3rd, 2015

Thank you for the opportunity to help you with your question! IF you have any clarification, please don't hesitate to ask and I will do my best to answer. ++++++++++++

Impact on 2014

Cost of goods sold = beginning inventory + purchases – ending inventory

Impact of Cost of goods sold

Impact on net income/retained earnings

$15,000 overstatement of beginning merchandise inventory

$15,000 overstatement

$15,000 understatement

$7,000 understatement in purchases

$7,000 understatement

$7,000 overstatement

Total impact

$8,000 overstatement

$8,000 understatement

Note:

1.  The $12,000 overstatement of ending merchandise inventory in 2015 has no impact on 2014


Please let me know if you need any clarification. I'm always happy to answer your questions.
Sep 16th, 2015

Dear Professor Liza,

Thank you for helping me. I would like to know where did you get the $15,000 overstatement of COGS that impact the $15,000 overstatement of net income and $15,000 understatement of retained earnings. Could I get a solution for this problem?

Thanks.

Robelyn Schwanitz

Sep 16th, 2015

Dear Robelyn,

Thank you. Please see below for the revision

Thank you for the opportunity to help you with your question! IF you have any clarification, please don't hesitate to ask and I will do my best to answer. ++++++++++++

Impact on 2014

Cost of goods sold = beginning inventory + purchases – ending inventory

Impact of Cost of goods sold

Impact on net income/retained earnings

$10,000 overstatement of beginning merchandise inventory

$10,000 overstatement

$10,000 understatement

$7,000 understatement in purchases

$7,000 understatement

$7,000 overstatement

Total impact

$3,000 overstatement

$3,000 understatement

Note:

1.  The $12,000 overstatement of ending merchandise inventory in 2015 has no impact on 2014


Please let me know if you need any clarification. I'm always happy to answer your questions.

Sep 16th, 2015

Thank you Professor Liza for helping me.


Sep 16th, 2015

It is my pleasure Robelyn.

Sep 16th, 2015

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Oct 3rd, 2015
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