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11111nata11111 [884]
2 years ago
5

Effect of Inventory Errors

Business
1 answer:
pav-90 [236]2 years ago
7 0

Answer:

Effect of Inventory Errors

1. Kate Interiors Company:

Ending Inventory of $378,500 counted as $366,900.

This shows that Ending inventory is undervalued by $11,600 ($378,500 - 366,900).

The cost of goods sold will be overstated by $11,600 and the net income understated by $11,600 in the income statement.

In the balance sheet, the assets are understated by $11,600 and Equity (Retained Earnings) understated by the same amount.

2. Waterjet Bath Company:

Ending Inventory of $719,880 counted as $728,660.

This shows that Ending inventory is overvalued by $8,780 ($728,660 - 719,880).

The cost of goods sold will be understated by $8,780 and the net income overstated by $8,780 in the income statement.

In the balance sheet, the assets are overstated by $8,780 and the Equity (Retained Earnings) overstated by $8,780.

Explanation:

An overstatement of Ending inventory results in understated cost of goods sold and overstated net income.  Conversely, an understatement of ending inventory results in overstated cost of goods sold and understated net income.

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McMahon Inc. reported the following on the company's statement of cash flows in 2016 and 2015:
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Answer:

$137,200; $103,600

Explanation:

In 2015:

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= Net cash flow from operating activity - Capital expenditure

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= $294,000 - $156,800

= $137,200

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= Net cash flow from operating activity - Capital expenditure

= $280,000 - (70% × $252,000)

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The following information is for Redwood Inc. for the year ended December 31, 2016. Redwood had a cash and cash equivalents bala
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Answer and Explanation:

The preparation of the cash flow statement using the direct method is presented below:  

                                         Redwood Inc.

                                     Cash flow statement

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