Tang, Inc. sells collectible jewelry on consignment from various manufacturers. Additionally, Tang sells its own line of specialty jewelry manufactured in-house. On December 31, 2019, during Tang, Inc 's annual inventory count, an inexperienced new staff member included in Tang's ending inventory €350,000 worth of inventory held on consignment from Metcalf Associates. Which of the following is correct regarding the impact of this error on Tang's income statement and statement of financial position at December 31, 2019?

Question

Quizplus · Accepted Answer

Including inventory held on consignment in Tang's ending inventory would result in overstating the ending inventory by €350,000. This overstatement would decrease the cost of goods sold (COGS), thereby increasing the net income for the year. Since net income contributes to retained earnings, retained earnings would be overstated by the same amount.

Tang, Inc Sells Collectible Jewelry on Consignment from Various Manufacturers