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mars1129 [50]
3 years ago
15

Berkshire Inc. uses a periodic inventory system. At the end of 2015, it missed counting some inventory items, resulting in an in

ventory understatement by $510,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made. If undetected, what is the effect of this error on Berkshire's 12/31/2015 balance sheet?
Assets understated by $510,000 and shareholders' equity understated by $510,000.

Assets understated by $357,000 and shareholders' equity understated by $357,000.

Assets understated by $510,000, liabilities understated by $153,000 and shareholders' equity understated by $357,000.

None of the above is correct.
Business
1 answer:
zlopas [31]3 years ago
6 0

Answer:

Assets understated by $510,000, liabilities understated by $153,000 and shareholders' equity understated by $357,000.

Explanation:

An understatement of closing inventory will have the following effects,

First of all the inventory as an asset is understated by $510,000

Second, this inventory was subject to deduction from the Cost of goods sold as, Cost of goods sold = Opening Inventory + Purchases - Closing Inventory.

Since this amount was not subtracted from the CGS, the gross profit and ultimately the Net profits were understated by $510,000.

This will be added in the net profits.

With an increase in net profits, the tax payable amount also increases. This is calculated as 510,000 * 0.30 = $153,000

So total change in profits is = 510,000 - 153,000 = $357,000

While $153,000 is still payable and is recorded as a tax payable liability.

Thus,

Assets understated by $510,000

Liabilities Understated by $153,000 (tax payable)

Share holders equity understated by $357,000 (part of retained profits)

Hope that helps.

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Hastings Entertainment has a beta of 0.65. If the market return is expected to be 11 percent and the risk-free rate is 4 percent
maria [59]

Answer:

The answer is 8.55 percent

Explanation:

This is Capital Assets Pricing Model(CAPM) shows the relationship between undiversified risk(systemai risk) and the expected rate of return for shareholders. It is used to determine the cost of equity. This model is widely used in finance.

The formula is: Risk free rate of return + beta(market return - risk free rate of return ).

Note that risk free rate of return - market return is known as risk premium i.e the compensation for taking risk.

Risk free rate of return - 4 percent

market return - 11 percent

Beta - 0.65

4 + 0.65(11 - 4)

4 + 0.65(7)

4 + 4.55

=8.55 percent

4 0
3 years ago
In two to three sentences, describe how making minimum payments on credit card balances increases the total cost.
rjkz [21]

Answer:

If you only make the minimum payment on your credit card, it could take years to pay off the balance. you could end up spending hundreds, in interest by the time the balance is required.

Explanation:

3 0
3 years ago
What is the endowment​ effect? A. Wealthier individuals place greater value on a particualr good relative to poorer individuals.
mr Goodwill [35]

Answer:

The correct answer is letter "C": People place a higher value on a good if they own it than they do if they are considering buying it.

Explanation:

The Endowment Effect reflects a situation in which people value an object more because they own it. The value they would give the object if they did not have it and were going to purchase it would be lower. This scenario takes place when people give a higher value to their objects because of emotional attachment.

4 0
3 years ago
Avia Company sells a product for $150 per unit. Variable costs are $70 per unit, and fixed costs are $1200 per month. The compan
Leya [2.2K]

Answer:

$80 per unit

Explanation:

Data provided in the question:

Per unit selling cost of the product = $150

Per unit variable cost of the product = $70

Total fixed cost per month = $1200

Now,

The unit contribution margin is calculated as:

unit contribution margin = Selling price per unit - Variable cost per unit

Thus,

unit contribution margin = $150 - $70

or

unit contribution margin = $80 per unit

Hence,

The correct answer is option $80 per unit

4 0
3 years ago
Zar company paid employee wages on and through friday,january,26 and the next playroll will be paid in february. Emploees work 5
garik1379 [7]

Answer:

Debit to Salaries Expense $2,700; Credit to Salaries Payable $2,700

Explanation:

In accounting, we have to recognize all expenses even though we haven't paid it yet. This is one of those instances.

The employees have worked for 3 days at the end of January but will not receive their payment on that day. That equates to $2,700 of salaries accrued at the end of January.

Accrued Expenses are recorded as payables, in this problem it's "Salaries Payable".

So to complete the adjusting journal entry:

(Debit)        Salaries Expense        $2,700

(Credit)                Salaries Payable              $2,700

3 0
3 years ago
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