Question :
11) If the cost of goods sold understated for the : 1230193
11) If the cost of goods sold is understated for the year, then:
A) ending inventory is understated for the year.
B) ending inventory is overstated for the year.
C) there is no effect on ending inventory for the year.
D) none of the above is true.
12) If ending inventory is understated for Year 1, then in Year 2:
A) cost of goods sold and gross profit will both be understated.
B) cost of goods sold and gross profit will both be overstated.
C) cost of goods sold will be overstated and gross profit will be understated.
D) cost of goods sold will be understated and gross profit will be overstated.
13) If ending inventory for the year ended December 31, 2011, is understated, this error will cause owners’ equity to be:
A) overstated at the end of 2011 and understated at the end of 2011.
B) understated at the end of 2011 and overstated at the end of 2012.
C) overstated at the end of 2011 and correctly stated at the end of 2011.
D) understated at the end of 2011 and correctly stated at the end of 2011.
14) There is an error in computing ending inventory in Year 1. Therefore:
A) the error will have no effect on Year 2 financial statements.
B) after three years, the inventory error will counterbalance.
C) gross profit will continue to be incorrect until an adjusting entry is made.
D) the total gross profit for Year 1 and Year 2 combined will be correct.
15) Crazy Eddie “cooked the books” which ultimately led the company to go out of business. Which of the following is a correct statement about the frauds at Crazy Eddie?
A) Crazy Eddie understated the inventory counts.
B) Crazy Eddie converted to a computerized inventory system to help them control their inventory problems.
C) The company’s auditors detected the inventory problems.
D) The inventory overstatement became larger than the total profits the company had reported since they went public.
16) Make Money Company Inc. had beginning inventory of $25,200, purchases of $87,600, ending inventory of $29,100, sales of $153,000, operating expenses of $30,000, and a tax rate of 40% for 2012. An accounting clerk input the ending inventory as $21,900. What is the effect on 2012 gross profit?
A) Gross profit will be $7,200 higher.
B) Gross profit will be $7,200 lower.
C) Gross profit will be $14,400 higher.
D) Gross profit will be $3,600 lower.
17) Make Money Company Inc. had beginning inventory of $25,200, purchases of $87,600, ending inventory of $29,100, sales of $153,000, and operating expenses of $30,000 for 2012. An accounting clerk input the ending inventory as $21,900. What is the effect on 2013 gross profit??
A) Gross profit will be overstated by $7,200.
B) Gross profit will be understated by $7,200.
C) Gross profit will be $3,600 higher.
D) Gross profit will be correct.
18) Happy House Corporation reported net income of $425,000 for the current year. After the financial statements had been prepared, it was discovered that ending inventory had been overstated by $25,000. The correct net income was:
A) $450,000.
B) $425,000.
C) $400,000.
D) $300,000.
19) Happy House Corporation reported net sales of $425,000 for the current year. After the financial statements had been prepared, it was discovered that ending inventory had been understated by $25,000. If the tax rate is 40%, after the error has been corrected, net income will:
A) increase by $25,000.
B) decrease by $25,000.
C) increase by $15,000.
D) decrease by $15,000.
20) Football, Inc.’s clerk made a mistake while preparing the financial statements. The ending inventory for Year 1 should have been $20,000, but the clerk recorded it as $23,000 on the income statement. Assume that sales for Years 1 and 2 are $90,000 per year and purchases are $20,000 per year. Beginning inventory for Year 1 of $12,000 and ending inventory for Year 2 of $21,000 were correctly recorded. Complete the following income statement for Year 1 and 2.
Period 1
Period 2
Sales revenue
Cost of goods sold:
Beginning inventory
Purchases
Cost of goods available
Ending inventory
Cost of goods sold
Gross profit
21) Debit Company’s $2 million cost of inventory at the end of last year was overstated by $250,000.
1.What was the effect of this error on last year’s reported total assets, gross profit, and net income?
2.What is the effect of this error on this year’s reported total assets, gross profit, and net income?
3.What is the effect of this error on next year’s reported total assets, gross profit, and net income?
