Question

In taking a physical inventory at the end of year 2011, Nadir Company forgot to count certain units. Indicate how this error affects the following:

   

(a)

2011 cost of goods sold.

	a.Overstates 2011 cost of goods sold.
	b.Understates 2011 cost of goods sold.
	c.None of the above

  

(b)

2011 gross profit.

a.	Understates 2011 gross profit.
b.	Overstates 2011 gross profit.
c.	None of the above.

   

(c)

2011 net income.

	a.Understates 2011 net income.
b.	Overstates 2011 net income.
c.	None of the above.

   

(d)

2012 net income.

	a.Understates 2012 net income.
	b.Overstates 2012 net income.
	c.None of the above.

   

(e)

The combined two-year income.

	a.The 2011 and 2012 incorrect net incomes combine to yield an incorrect total income for the two-year period.
	b.The 2011 and 2012 incorrect net incomes combine to yield a correct total income for the two-year period.

   

(f)

Income for years after 2012.

	a.The 2011 error will not affect years after 2012.
	b.The 2011 error will affect years after 2012.

Answer 1

question (a) answer : a. overstates 2011 cost of goods sold

question b) answer: a . understates 2011 gross profit

question (c)answer : a. understates 2011 net income

question (d) answer: b. overstates 2012 net income

question (e) answer: b. the 2011 and 202 incorrect net incomes combine to yield a correct total income for the two year period

question (f) answer : a. the 2011 error will not affect years after 2012

explanation:

1. at the end of year 2011 forgot to count certain units

2.it increases the cost of goods sold and decreases the gross profit and net profit

3. it will affect the 2012 year cost of goods sold also (understated)

4. net incone for 2012 is also affected ( overstated )