Question

1. Ending inventory for fiscal year ending December 31, 2019 was overstated (some of the inventory was counted twice). What would this effect have on year ending 2019:
   1. Assets overstated
   2. Assets understated
   3. Retained Earnings overstated
   4. Retained Earnings understated
   5. Sales overstated
   6. Sales understated
   7. Gross Profit overstated
   8. Gross Profit understated
   1. Net Income overstated
   10. Net Income understated               
   11. Ending inventory for fiscal year ending December 31, 2018 was overstated (some of the inventory was counted twice). Ending inventory for December 31, 2019 was correctly counted. What would this effect have on year ending 2019):
       1. Assets overstated
       2. Assets understated
       3. Retained Earnings overstated
       4. Retained Earnings understated
       5. Sales overstated
       6. Sales understated
       7. Gross Profit overstated
       8. Gross Profit understated
       1. Net Income overstated
       10. Net Income understated

Answer 1

Ending inventory for fiscal year ending December 31, 2019 was overstated (some of the inventory was counted twice). It will have the following effect on year ending 2019:

Assets overstated

Retained Earnings overstated

Gross Profit overstated

Net Income overstated  

Due to overstated ending inventory, both the gross profit and net income would be overstated.

Ending inventory for fiscal year ending December 31, 2018 was overstated (some of the inventory was counted twice). Ending inventory for December 31, 2019 was correctly counted. It would have the following effect on year ending 2019:

Assets correctly stated

Retained Earnings correctly stated

Gross Profit understated

Net Income understated

Due to overstated beginning inventory, both the gross profit and net income would be understated.