Question : 11) Two separate errors affected Rollings Company in 2013. The : 1212660

11) Two separate errors affected Rollings Company in 2013. The beginning inventory was overstated by $12,000 and the ending inventory was overstated by $18,000. Net income in 2014 will be:

A) overstated by $30,000.

B) understated by $18,000.

C) overstated by $18,000.

D) overstated by $6,000.

 

12) If ending inventory for the current accounting period is overstated by $3,500:

A) net income for the current period will be overstated by $3,500.

B) ending inventory for the next period will be overstated by $3,500.

C) cost of goods sold for the current period will be overstated by $3,500.

D) owner’s equity at the end of the next accounting period will be overstated by $3,500.

 

13) If ending inventory for the current period is understated, then owner’s equity will be:

A) overstated at the end of the current period and understated at the end of the next period.

B) understated at the end of the current period and overstated at the end of the next period.

C) overstated at the end of the current period, but it will be correct at the end of the next period.

D) understated at the end of the current period, but it will be correct at the end of the next period.

 

14) If ending inventory for the current accounting period is understated by $4,700:

A) beginning inventory for the next period will be overstated by $4,700.

B) net income for the current period will be overstated by $4,700.

C) owner’s equity at the end of the next accounting period will be understated by $4,700.

D) cost of goods sold for the current period will be overstated by $4,700.

15) The bookkeeper for Duncan Company made an error in recording the year-end inventory balance on December 31, 2013. As a result, ending inventory was understated by $37,000.

 

a) What effect will this error have on cost of goods sold, gross margin, net income, and owner’s equity in 2013?

b) As of December 31, 2014, what will be the cumulative effect of this error on owner’s equity?

 

16) Determine the effect on cost of goods sold and net income for the current year of the following inventory errors. Indicate your answer with either a + (overstated) or a – (understated).

 

Item

Error

Effect on Cost

of Goods Sold

Effect on

Net Income

1)

Beginning inventory is overstated.

 

 

2)

Ending inventory is understated.

 

 

3)

Beginning inventory is understated.

 

 

4)

Ending inventory is

overstated.

 

 

 

17) The following data are available for three products of the Classic Company:

 

ABC

Beginning inventory$ 5,000 $20,000$15,000

Purchases45,000 65,00062,000

Goods available for sale50,00085,00077,000

Ending inventory18,00013,0009,000

Cost of goods sold32,00072,00068,000

 

You discover the following errors:

a) Ending inventory for product A was overstated by $6,000.

b) Ending inventory for product B was understated by $5,000.

c) Beginning inventory for product C was overstated by $3,000.

 

Considering these errors, recalculate cost of goods sold for each product.

18) Delta Cleaning Supplies reported the comparative income statement for the years ended December 31, 2013 and 2014:

 

20142013

Sales revenue$82,500$73,000

Cost of goods sold:

    Beginning inventory8,2507,700

    Net purchases   45,500  39,000

    Cost of goods available53,75046,700

    Ending inventory  11,800    8,250

    Cost of goods sold     41,950    38,450

Gross margin40,55034,550

Operating expenses    18,200  15,750

Net income before taxes$ 22,350$18,800

 

In the audit of the 2013 financial statements it was discovered that the ending inventory was actually $10,050 and the beginning inventory was actually $6,500.

 

Required:

1.What adjustment to the 2013 owner’s capital account is necessary?

2.Prepare a corrected income statement for 2014.