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Assuming the errors had not been corrected, indicate the dollar effect

Assuming the errors had not been corrected, indicate the dollar effect 



1
Speer's Hardware Store prepared the following analysis of cost of goods sold for the previous three years:
	   2010		   2011		   2012	
Beginning inventory 1/1	€40,000	€18,000	€25,000
Cost of goods purchased	  50,000	  55,000	  70,000
Cost of goods available for sale	90,000	73,000	95,000
Ending inventory 12/31	  18,000	  25,000	  40,000
Cost of goods sold	$72,000	$48,000	$55,000

Net income for the years 2010, 2011, and 2012 was €70,000, €60,000, and €55,000, respectively. Since net income was consistently declining, Mr. Speer hired a new accountant to investigate the cause(s) for the declines.

The accountant determined the following:
1.	Purchases of €20,000 were not recorded in 2010.
2.	The 2010 December 31 inventory should have been €24,000.
3.	The 2011 ending inventory included inventory costing €8,000 that was purchased FOB destination and in transit at year end.
4.	The 2012 ending inventory did not include goods costing €4,000 that were shipped on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were still in transit at the end of the year.

Instructions
Determine the correct net income for each year. (Show all computations.)



2
Graves Pharmacy reported cost of goods sold as follows:

	     2011		     2012	
Beginning inventory	$   54,000	$   64,000
Cost of goods purchased	  847,000	  891,000
Cost of goods available for sale	901,000	955,000
Ending inventory	    64,000	    55,000
Cost of goods sold	$837,000	$900,000

Hill, the bookkeeper, made two errors:
(1)	2011 ending inventory was overstated by $6,000.
(2)	2012 ending inventory was understated by $15,000.

Instructions
Assuming the errors had not been corrected, indicate the dollar effect that the errors had on the items appearing on the financial statements listed below. Also indicate if the amounts are overstated (O) or understated (U).
	2011	2012
	Overstated/	Overstated/
	  Amount	Understated	  Amount	Understated
Total assets	$_________	_______	$_________	_______

Equity	$_________	_______	$_________	_______

Cost of goods sold	$_________	_______	$_________	_______

Net income	$_________	_______	$_________	_______




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02 Apr 2016

Answers (1)

  1. Genius

    Assuming the errors had not been corrected, indicate the dollar effect

    Assuming the errors had not been corrected, indicate the ****** ******
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