EXERCISE 13-1A      page 507

INVENTORY ERRORS

Assume that in year 1, the ending merchandise inventory is overstated by $50,000. If this is the only error

in years 1 & 2, indicate which items will be understated, overstated, or correctly stated for years 1 & 2.

The ending inventory amount for the end of year 2 is correct.

Here are some hints:

This year's ending inventory is next year's beginning inventory.

The Cost of Goods Available for Sale will end up in two places - either it

has been sold and is now Cost of Goods Sold or it is still on hand in ending

Inventory. If one of those is overstated the other will be understated.

The Chapter 13 Part I PowerPoint lecture focuses on the effects of inventory errors.

In each box below select one of these choices by moving your cursor

to the box and selecting one of these choices from the drop down menu:

Understated

Overstated

Correct

YEAR 1

YEAR 2

Ending merchandise inventory

Beginning merchandise inventory

Cost of goods sold

Gross profit

Net Income

Ending Owner's Capital