Financial Accounting
Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 5A, Problem 1YT

Berry Corporation miscounted the ending inventory at December 31, 2010. The balance sheet reported inventory of $360,000, but $25,000 worth of items were omitted from that amount. Berry reported net income of $742,640 for the year. What effect did this inventory error have on Berry’s cost of goods sold for the year? What is the correct net income for the year ended December 31, 2010?

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To determine

Identify the impact of the given inventory errors on the cost of goods sold and compute the correct net income.

Explanation of Solution

The cost of goods sold would be overstated as the ending inventory is understated. The amount worth $25,000 was omitted while calculating the cost of goods sold, hence the net income would have been understated by $25,000. Therefore, the correct net income for the year end would be $767,640.

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Ebbers Corporation overstated its ending inventory balance by $15,000 in the current year. What impact will this error have on cost of goods sold and gross profit in the current year and following year?
Vader Corporation made two errors in counting inventory: Ending inventory for 2019 was overstated by $15,000, and ending inventory for 2020 was understated by $12,000. If neither error was corrected, what will be the error (before taxes) in 2020 net income? a.Overstated $27,000. b.Understated $27,000. c.Overstated $3,000. d.Understated $3,000.
The inventory at the end of the year was understatedby $14,750. (a) Did the error cause an overstatementor an understatement of the gross profit forthe year? (b) Which items on the balance sheet atthe end of the year were overstated or understatedas a result of the error?
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