You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2018, you discover the f
ollowing errors related to the 2016 and 2017 financial statements: Inventory at 12/31/16 was understated by $6,800. Inventory at 12/31/17 was overstated by $9,800. On 12/31/17, inventory was purchased for $3,800. The company did not record the purchase until the inventory was paid for early in 2018. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2017 financial statements were issued, analyze the effect of the errors on 2017 and 2016 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors.
1 answer:
You might be interested in
Answer:
a. Curve MM is more elastic between points A and C than curve NN is between points A and D: TRUE
b. Between points A and B, curve LL is unit elastic: FALSE
c. Between points A and D, curve NN is inelastic: TRUE
Explanation:
Elasticity is the responsiveness of quantity demanded or quantity supplied to a change in the price. There are five categories of elasticities:
1. Perfectly elastic: Quantity changes even without a change in price. Curve is a horizontal line.
2. Elastic: Change in price is smaller than a change in quantity. Curve has a smoother slope.
3. Unit elastic: Change in price causes a proportionate change in quantity. Curve is a rectangular hyperbola.
4. Inelastic: Change in price causes a smaller change in quantity. Curve is a steep slope.
5. Perfectly inelastic: Change in price causes no change in quantity. Curve is a vertical line.
