Question :
61. Wilmington Company reported pretax income of $25,000 during 2010 and : 1228533
61. Wilmington Company reported pretax income of $25,000 during 2010 and $30,000 during 2011. Later it was discovered that the ending inventory for 2010 was understated by $2,000 (and not corrected in 2011). What is the correct pretax income for each year?
A. Option A
B. Option B
C. Option C
D. Option D
2010 Net income ($27,000) = Reported pretax income ($25,000) + Understatement of ending inventory ($2,000).
2011 Net income ($28,000) = Reported pretax income ($30,000) – Understatement of beginning inventory ($2,000).
62. At the end of 2010, a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records. What were the 2010 effects of the $5,000 inventory error (before correction)?
A. Assets were understated by $5,000 and pretax income was understated by $5,000.
B. Assets were understated by $5,000 and pretax income was overstated by $5,000.
C. Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
D. Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.
63. An understatement of the ending inventory in Year 1, if not corrected, will cause which of the following?
A. The year 1 net income to be understated and Year 2 net income to be overstated.
B. The year 1 net income to be overstated and Year 2 net income to be overstated.
C. The year 1 net income to be overstated and Year 2 net income will be correct.
D. The year 1 net income to be overstated and Year 2 net income to be understated.
64. Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?
A. Net income is understated by $600.
B. Net income is understated by $2,000.
C. Net income is overstated by $600.
D. Net income is overstated by $2,000.
65. On December 15, 2010, Transport Company accepted delivery of merchandise which it purchased on credit. As of December 31, 2010, the company had neither recorded the transaction nor included the merchandise in its ending inventory amount because the seller’s invoice had not been received. The effect of this omission on its balance sheet at December 31, 2010, (end of the accounting period) was that
A. assets and stockholder’s equity were overstated but liabilities were not affected.
B. stockholder’s equity was the only item affected by the omission.
C. assets and liabilities were understated but stockholders’ equity was not affected.
D. assets and stockholders’ equity were understated but liabilities were not affected.
66. A company using the periodic inventory system correctly recorded a purchase of merchandise, but the merchandise was not included in the physical inventory count at the end of the accounting period. The error caused which of the following?
A. An understatement of both net income and assets.
B. An overstatement of inventory, purchases, and accounts payable.
C. An understatement of inventory, purchases, and accounts payable.
D. An overstatement of net income and assets.
67. Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2010 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?
A. 2010 net income would be overstated.
B. 2010 net income would be understated.
C. 2010 ending retained earnings would be understated.
D. 2010 cost of goods sold would be overstated.
68. During the audit of Montane Company’s 2010 financial statements, the auditors discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010 beginning inventory was overstated by $5,000. Before the effect of these errors, 2010 pretax income had been computed as $100,000. What should be reported as the correct 2010 pretax income before taxes?
A. $113,000
B. $87,000
C. $105,000
D. $97,000
69. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was ending inventory using the LIFO cost flow assumption?
A. $640,000
B. $840,000
C. $770,000
D. $880,000
70. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was ending inventory using the FIFO cost flow assumption?
A. $640,000
B. $840,000
C. $960,000
D. $880,000
