Question 1

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is overstated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

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Question 2

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is overstated on the balance sheet.

Accepted Answer

Since the inventory was excluded, the cost of goods sold will be understated by $1,000, resulting in an understatement of the gross margin by $1,000. Therefore, choice B is incorrect. Also, there is no impact on the beginning inventory or the balance sheet, so choices A and D are incorrect. Choice C is correct as the cost of sales is understated by $1,000.

Question 3

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)Retained earnings is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

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Question 4

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Retained earnings is understated by $1,000.
C)The retained earnings will be correctly stated.
D)Inventory is understated on the balance sheet.

Accepted Answer

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Question 5

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

Since the inventory was excluded in error during the ending inventory count, the cost of goods available for sale will be understated by $1,000. Therefore, this will impact the calculation of cost of goods sold in fiscal 2013, resulting in an understatement of gross margin by the same amount. However, the beginning inventory of fiscal 2013 will not be impacted by this error.

Question 6

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

Since the inventory was excluded from the ending inventory count, the cost of sales for fiscal 2012 will be understated by $1,000, meaning that gross margin will be overstated by $1,000. As a result, this will have an adverse effect on fiscal 2013 financial reporting, as it will result in an overstatement of the beginning inventory for fiscal 2013, i.e., Beginning inventory is overstated by $1,000.

Question 7

For each of the following independent scenarios, indicate the effect of the error (if any)on:
i. 2012 net income;
ii. 2013 net income; and
iii. 2013 closing retained earnings.
The company uses the periodic system of inventory and its fiscal year-end is December 31. Ignore income tax effects. Consider each of the following independent scenarios:
a. Your analysis of inventory indicates that inventory at the end of 2012 was overstated by $27,000 due to an inventory count error. Inventory at the end of 2013 was correctly stated.
b. Invoices in the amount of $107,000 for inventory received in December 2012 were not entered in the books in 2012. They were recorded as purchases in January 2013 when they were paid. The goods were counted in the 2012 inventory count and included in ending inventory on the 2012 financial statements.
c. Goods received on consignment valued at $89,000 were included in the physical count of goods at the end of 2013 and included in ending inventory on the 2013 financial statements.

Accepted Answer

The answer of For each of the following independent scenarios,...

Question 8

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2013 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Inventory is overstated on the balance sheet.

Accepted Answer

The inventory error in fiscal 2012 will not cause the inventory to be overstated on the balance sheet in fiscal 2013. Instead, the beginning inventory for fiscal 2013 will be understated, affecting cost of sales and gross margin.

Question 9

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Cost of sales is understated by $500.
B)No effect on gross margin.
C)Operating expenses are overstated by $500.
D)Operating profit is overstated by $500.

Accepted Answer

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Question 10

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)Retained earnings is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

The answer of Assume that ending inventory in fiscal 2012...

Question 11

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is overstated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)No effect on beginning inventory.

Accepted Answer

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Question 12

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is not affected by the prior year inventory counting error.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

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Question 13

JP Corporation had net income of $1,000,000 for 2012. After issuing its financial statements, the corporation realized that it had failed to include inventory from one of its small warehouses for two years. Specifically, it forgot to include $20,000 on December 31, 2011 and $30,000 on December 31, 2012. Which of the following is true regarding JP's 2011 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.

Accepted Answer

The $20,000 inventory at the end of 2011 was not included, which means the cost of goods sold was overstated, leading to an understatement of net income by $20,000. However, the question asks about the impact on 2011 net income, and the $30,000 inventory at the end of 2012 does not affect 2011 net income. Therefore, the net income for 2011 was understated by $20,000, but since the choices do not reflect this, the closest correct choice is A, assuming a typo or misstatement in the options.

Question 14

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

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Question 15

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is understated by $1,000.
B)No effect on cost of goods available for sale.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

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Question 16

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2012 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

An overstatement of ending inventory leads to an overstatement of net income, which in turn overstates retained earnings.

Question 17

Lee Limited began operations on January 1, 2012. The following data relate to the company's first 2 years in business:  What is the correct cost of goods sold for 2013?
A)$400,000
B)$405,000
C)$450,000
D)$460,000

Accepted Answer

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Question 18

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2012 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)No effect on retained earnings.
D)Inventory is understated on the balance sheet.

Accepted Answer

Ending inventory is reported on the balance sheet, so an overstatement of $1,000 would cause assets to be overstated by $1,000. This would also cause retained earnings to be overstated by the same amount, as net income would have been inflated by $1,000 due to the overstatement of ending inventory. Therefore, choice A is correct. Choice B is incorrect because an overstatement of ending inventory would affect the inventory value reported on the balance sheet. Choice C is incorrect for the same reason as choice A. Choice D is incorrect because an overstatement of ending inventory would cause inventory to be overstated on the balance sheet, not understated.

Question 19

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Retained earnings is understated by $1,000.
C)No effect on retained earnings.
D)The retained earnings will be correctly stated.

Accepted Answer

The answer of Assume that ending inventory in fiscal 2012...

Question 20

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2013 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is overrstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

The answer of Assume that a purchase invoice for $1,000...

Quiz 6: Inventories

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2012 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2013 financial reporting?

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2012 financial reporting?

Lee Limited began operations on January 1, 2012. The following data relate to the company's first 2 years in business: What is the correct cost of goods sold for 2013?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2012 financial reporting?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2013 financial reporting?