Answer:
$600,000; $40,000 (understated); Reduced by $40,000; Reduced by $40,000.
Explanation:
Given that,
Physical count = $470,000
Cost of shipment of goods received = $70,000
Another supplier shipment costing = $30,000
Merchandise cost = $100,000
Correct December 31, 2018, inventory balance:
= Physical inventory + Merchandise inventory (FOB)
= $470,000 + ($30,000 + $100,000)
= $470,000 + $130,000
= $600,000
Change in cost of goods sold:
= Change in net purchase(Understated) + Change in ending inventories
= [$70,000 + $100,000] + (-$130,000)
= $170,000 - $130,000
= $40,000 (Understated)
Net income reduced by $40,000 and also, the retained earnings reduced by $40,000.
