Question

Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of ots physical inventory on Dec. 31, 20y8, Madison incorrectly counted ots inventory ad 545,000 instead of the correct amount of 555,,400. How does this effect error on balance sheet items.....inventory...current assets...total assets..and Stockholder enquity?

Answer 1

Amount of error	10400	=555400-545000
a
Balance Sheet Items	Understated/Overstated	Amount
Merchandise Inventory	Understated	10400
Current Assets	Understated	10400
Total Assets	Understated	10400
Owner's Equity	Understated	10400
b
Income Statement Items	Understated/Overstated	Amount
Cost of Merchandise Sold	Overstated	10400
Gross Profit	Understated	10400
Net Income	Understated	10400
c
Income Statement Items	Understated/Overstated	Amount
Cost of Merchandise Sold	Understated	10400
Gross Profit	Overstated	10400
Net Income	Overstated	10400

The December 31, 20Y9, balance sheet would be correct, since the 20Y8 inventory error reverses itself in 20Y9.