For each of the following inventory errors occurring in 2018, determine the effe
ID: 2533679 • Letter: F
Question
For each of the following inventory errors occurring in 2018, determine the effect of the error on 2018's cost of goods sold, net income, and retained eanings. Assume that the error is not discovered until 2019 and that a periodic inventory system is used. Ignore income taxes. U-Understated -Overstated NE No effect Cost of Net Income Earnings Inventory Error Goods Sold Example) 1. Overstatement of ending inventory 0 2. Overstatement of purchases 3. Understatement of beginning inventory 4. Freight-in charges are understated 5. Understatement of ending inventory 6. Understatement of purchases 7. Overstatement of beginning inventory 8. Understatement of purchases and understatement of ending inventory, by the same amountExplanation / Answer
Cost of Goods sold
Net Income
Retained Earnings
1
Overstatements of ending inventory
U
O
O
2
Overstated of purchases
O
U
U
3
Understatement of beginning inventory
U
O
O
4
Freight-in charges are understated
U
O
O
5
Understatement of ending inventory
O
U
U
6
Understatement of purchases
U
O
O
7
Overstatement of beginning inventory
O
U
U
8
Understatement of purchases and understatement of ending inventory, by the same amount.
N.E
N.E
N.E
Cost of Goods sold
Net Income
Retained Earnings
1
Overstatements of ending inventory
U
O
O
2
Overstated of purchases
O
U
U
3
Understatement of beginning inventory
U
O
O
4
Freight-in charges are understated
U
O
O
5
Understatement of ending inventory
O
U
U
6
Understatement of purchases
U
O
O
7
Overstatement of beginning inventory
O
U
U
8
Understatement of purchases and understatement of ending inventory, by the same amount.
N.E
N.E
N.E
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