effect of inventory errors\n\nduring the taking of its physical inventory on december 31, 20y3, waterjet…

effect of inventory errors\n\nduring the taking of its physical inventory on december 31, 20y3, waterjet bath company incorrectly counted its inventory as $733,700 instead of the correct amount of $727,200. indicate the effect of the misstatement on waterjet baths december 31, 20y3, balance sheet and income statement for the year ended december 31, 20y3. also record the amount of each overstatement or understatement. enter all amounts as positive numbers.\n\ninventory\ncurrent assets\ntotal assets\nstockholders equity\ncost of goods sold\ngross profit\nnet income

effect of inventory errors\n\nduring the taking of its physical inventory on december 31, 20y3, waterjet bath company incorrectly counted its inventory as $733,700 instead of the correct amount of $727,200. indicate the effect of the misstatement on waterjet baths december 31, 20y3, balance sheet and income statement for the year ended december 31, 20y3. also record the amount of each overstatement or understatement. enter all amounts as positive numbers.\n\ninventory\ncurrent assets\ntotal assets\nstockholders equity\ncost of goods sold\ngross profit\nnet income

Answer

Explanation:

Step1: Calculate the inventory error amount

$$ \text{Error Amount} = $733,700 - $727,200 = $6,500 $$

Step2: Determine balance sheet effects

Since recorded inventory is higher than actual, Inventory, Current Assets, and Total Assets are overstated by $$6,500$.

Step3: Determine Cost of Goods Sold effect

$$ \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} $$ An overstated ending inventory results in an understated COGS by $$6,500$.

Step4: Determine profit and equity effects

Understated COGS leads to overstated Gross Profit and Net Income. Overstated Net Income results in overstated Stockholders' Equity by $$6,500$.

Answer:

Account Effect Amount
Inventory Overstated $6,500
Current assets Overstated $6,500
Total assets Overstated $6,500
Stockholders' equity Overstated $6,500
Cost of goods sold Understated $6,500
Gross profit Overstated $6,500
Net income Overstated $6,500