Question

Effect of Errors in Physical Inventory Eclipse Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2014, Eclipse Motorcycle Shop incorrectly counted its inventory as $432,780 instead of the correct amount of $415,470. Enter all amounts as positive numbers. a. State the effect of the error on the December 31, 2014, balance sheet of Eclipse Motorcycle Shop. Balance Sheet Items Overstated / Understated Amount Merchandise Inventory $fill in the blank 2 Current Assets $fill in the blank 4 Total Assets $fill in the blank 6 Owner's Equity $fill in the blank 8 b. State the effect of the error on the income statement of Eclipse Motorcycle Shop for the year ended December 31, 2014. Income Statement Items Overstated / Understated Amount Cost of Merchandise Sold $fill in the blank 10 Gross Profit $fill in the blank 12 Net Income $fill in the blank 14 c. If uncorrected, what would be the effect of the error on the 2015 income statement? Income Statement Items Understated / Overstated Amount Cost of Merchandise Sold $fill in the blank 16 Gross Profit $fill in the blank 18 Net Income $fill in the blank 20

Answer 1

Amount of error	17310	=432780-415470
a
Balance Sheet Items	Understated/Overstated	Amount
Merchandise Inventory	Overstated	17310
Current Assets	Overstated	17310
Total Assets	Overstated	17310
Owner's Equity	Overstated	17310
b
Income Statement Items	Understated/Overstated	Amount
Cost of Merchandise Sold	Understated	17310
Gross Profit	Overstated	17310
Net Income	Overstated	17310
c
Income Statement Items	Understated/Overstated	Amount
Cost of Merchandise Sold	Overstated	17310
Gross Profit	Understated	17310
Net Income	Understated	17310