Question

Missouri River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y2, Missouri River Supply incorrectly counted its inventory as $233,400 instead of the correct amount of $238,600. a. State the effect of the error on the December 31, 20Y2, balance sheet of Missouri River Supply. b. State the effect of the error on the income statement of Missouri River Supply for the year ended December 31, 20Y2. c. If uncorrected, what would be the effect of the error on the 20Y3 income statement

Answer 1

Answer:

a. Inventory will be understated by $5,200.

b. Cost of Goods Sold will be overstated by $5,200. It will affect your Gross Profit and will reduce your profit.

c. Cost of Goods Sold will be understated by $5,200 and as a result overstatement of Gross Profit will arise.

Explanation:

Simply keep the formula of Cost of Goods Sold in your mind and do your calculations.

Cost of Goods Sold = Beginning Inventory + Purchases - Closing Inventory

Thanks!