Effect of Errors in Physical Inventory Fonda Motorcycle Shop sells motorcycles,

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, 20Y8, Fonda Motorcycle Shop incorrectly counted its inventory as $224,990 instead of the correct amount of $215,990.

Enter all amounts as positive numbers.

a. State the effect of the error on the December 31, 20Y8, balance sheet of Fonda Motorcycle Shop.

b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y8.

c. If uncorrected, what would be the effect of the error on the 20Y9 income statement?

d. If uncorrected, what would be the effect of the error on the December 31, 20Y9, balance sheet?

The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in 20Y9.

The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error understates the inventory in 20Y9.

The December 31, 20Y9, balance sheet would be incorrect, since the 20Y8 inventory error overstates the inventory in 20Y9.

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

Explanation / Answer

A)

B)

C)

D)

Balance sheet would be incorrect since the 20Y8 inventory error understated the inventory in 20Y9

Please comment if any problem, thank u

Merchandise inv. Overstated $9000 Current assets overstated $9000 Total assets overstated $9000 Ownrrs equity overstated $9000

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