Answer:
current ratio before adjustments = 1.81
current ratio after adjustments = 1.87
income should increase by $3,200
Explanation:
1. Goods purchased costing $21,860 were shipped f.o.b. shipping point by a supplier on December 28. Brown received and recorded the invoice on December 29, 2019, but the goods were not included in Brown's physical count of inventory because they were not received until January 4, 2020. GOODS SHOULD BE INCLUDED IN INVENTORY, INCREASING TOTAL ASSETS BY $21,860.
3. Goods held on consignment from Claudia Kishi Company were included in Brown's December 31, 2019, physical count of inventory at $13,130. GOODS SHOULD HAVE NOT BEEN INCLUDED IN INVENTORY, DECREASING TOTAL ASSETS BY $13,130
4. Freight-in of $3,200 was debited to advertising expense on December 28, 2019. SHOULD HAVE INCREASED THE INVENTORY ACCOUNT AND SHOULD HAVE NOT BEEN CONSIDERED AN EXPENSE. ASSETS SHOULD INCREASE BY $3,200.
total assets = $384,510 + $21,960 - $13,130 + $3,200 = $396,540
liabilities did not change = $212,400
income should increase by $3,200 which is the freight cost, not an expense.
current ratio before adjustments = $384,510 / $212,400 = 1.81
current ratio after adjustments = $396,540 / $212,400 = 1.87
income should increase by $3,200
