Question 1

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is overstated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)No effect on beginning inventory.

Accepted Answer

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Question 2

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)Retained earnings is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

The answer of Assume that ending inventory in fiscal 2019...

Question 3

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

Since inventory was excluded in error during the ending inventory count, this means that the value of the inventory at the end of fiscal 2019 was understated by $1,000. Therefore, the cost of sales for fiscal 2019 was also understated by $1,000, which in turn means that gross margin for the year was overstated by $1,000. When we move on to reporting for fiscal 2020, the understated cost of sales from the previous year will impact the beginning inventory for the current year. This means that beginning inventory for fiscal 2020 will be understated by $1,000, which will in turn lead to an understatement of cost of goods available for sale and an overstatement of gross margin for the current year if this error is not corrected.

Question 4

Lee Limited began operations on January 1, 2019. The following data relate to the company's first 2 years in business: $$\begin{array} { | l | r | r | } 
\hline \text { Inventory } & \text { Reported Amount } & \text { Correct Amount } \
\hline \text { December } 31,2019 & 25,000 & 20,000 \
\hline \text { December } 31,2020 & 35,000 & 30,000 \
\hline \text { Cost of goods sold } & & \
\hline \text { For } 2019 & 400,000 & ? ? ? ? ? ? \
\hline \text { For } 2020 & 450,000 & ? ? ? ? ? ? \
\hline
\end{array}$$ What is the correct cost of goods sold for 2020?
A)$400,000
B)$405,000
C)$450,000
D)$460,000

Accepted Answer

The answer of Lee Limited began operations on January 1,...

Question 5

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is not affected by the prior year inventory counting error.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

DIf the inventory was excluded in error during the ending inventory count of fiscal 2019, it means that the inventory was not accounted for in the ending inventory of 2019. This error will carry over to fiscal 2020 as the ending inventory of 2019 becomes the beginning inventory of 2020. Therefore, the beginning inventory for fiscal 2020 will be understated (not overstated), as the $1,000 inventory was not included. However, since the inventory was actually purchased and should have been included, the error in counting does not affect the actual ending inventory for fiscal 2020, assuming it is correctly counted at the end of 2020. Thus, the correct statements are that the ending inventory is not affected by the prior year inventory counting error (C), and the explanation regarding the beginning inventory being overstated (D) is incorrect based on the premise but correctly identifies that there is an impact on inventory values due to the error.

Question 6

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Retained earnings is understated by $1,000.
C)No effect on retained earnings.
D)The retained earnings will be correctly stated.

Accepted Answer

The answer of Assume that ending inventory in fiscal 2019...

Question 7

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is overstated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

The answer of Assume that a purchase invoice for $1,000...

Question 8

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

When inventory is excluded in error, it does not affect the gross margin directly in the subsequent year. The error impacts the beginning inventory and cost of sales, which indirectly affects gross margin, but the direct effect is on inventory valuation and cost of sales, not the gross margin itself.

Question 9

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is overstated on the balance sheet.

Accepted Answer

The answer of Assume that a purchase invoice for $1,000...

Question 10

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this NOT have on fiscal 2020 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

Since the inventory was excluded from the ending inventory count, it will result in an understatement of inventory value on the balance sheet. However, this error will not affect the calculation of cost of sales or gross margin in fiscal 2020 since it relates to an inventory item from the prior year. Therefore, the only impact will be on the beginning inventory balance, which will be understated by $1,000.

Question 11

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)Retained earnings is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

The answer of Assume that ending inventory in fiscal 2019...

Question 12

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Retained earnings is understated by $1,000.
C)The retained earnings will be correctly stated.
D)Inventory is understated on the balance sheet.

Accepted Answer

If ending inventory in fiscal 2019 is overstated by $1,000, it means that the cost of goods sold (COGS) is understated for that year, leading to an overstatement of net income. Since net income contributes to retained earnings, retained earnings will be overstated by $1,000 going into fiscal 2020.

Question 13

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is understated by $1,000.
B)No effect on cost of goods available for sale.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

The answer of Assume that a purchase invoice for $1,000...

Question 14

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Beginning inventory is overstated by $1,000.

Accepted Answer

Since the inventory was excluded in error during the ending inventory count, cost of goods available for sale will be understated by $1,000. This will result in an understatement of cost of sales by $1,000 in fiscal 2020, which will in turn result in an overstatement of gross margin by $1,000. However, the error will not impact beginning inventory from the previous year.

Question 15

JP Corporation had net income of $1,000,000 for 2020. After issuing its financial statements, the corporation realized that it had failed to include inventory from one of its small warehouses for two years. Specifically, it forgot to include $20,000 on December 31, 2019 and $30,000 on December 31, 2020. Which of the following is TRUE regarding JP's 2019 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.

Accepted Answer

The $20,000 inventory omission on December 31, 2019 means that the cost of goods sold was overstated, leading to an understatement of net income by $20,000 for 2019.

Question 16

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2019 financial reporting?
A)Retained earnings is overstated by $1,000.
B)No effect on inventory value on the balance sheet.
C)No effect on retained earnings.
D)Inventory is understated on the balance sheet.

Accepted Answer

Overstating ending inventory means that the cost of goods sold (expense) is understated by $1,000, resulting in net income being overstated by the same amount. Since net income is part of retained earnings, this means that retained earnings are also overstated by $1,000. Therefore, the best choice is A. There would be no effect on inventory value on the balance sheet (B) or an understatement of inventory (D), as the inventory amount is not adjusted.

Question 17

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2019 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

When ending inventory is overstated, it means that the cost of goods sold (COGS) is understated because the ending inventory is subtracted from goods available for sale to calculate COGS. This results in higher gross margin and net income, thereby overstating retained earnings.

Question 18

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?
A)Retained earnings is overstated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is understated on the balance sheet.

Accepted Answer

An overstatement of ending inventory in fiscal 2019 will lead to an understatement of cost of goods sold in fiscal 2019, which inflates the gross margin for that year. However, in fiscal 2020, the beginning inventory will be overstated, leading to an overstatement of cost of goods sold and thus an understatement of gross margin for fiscal 2020.

Question 19

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Cost of sales is understated by $500.
B)No effect on gross margin.
C)Operating expenses are overstated by $500.
D)Operating profit is overstated by $500.

Accepted Answer

Since the inventory has already been appropriately included in the ending inventory count, there will be no effect on the gross margin. Also, operating expenses and operating profit will not be impacted as the purchase invoice was not recorded in fiscal 2019.

Question 20

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2019 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is overstated on the balance sheet.

Accepted Answer

If the inventory was excluded in error during the ending inventory count, it means that the inventory (which was supposed to be included in the count) was not subtracted from the cost of sales. Therefore, the cost of sales is understated by $1,000, which will result in an overstatement of gross margin. Beginning inventory is not affected by this error, and inventory is not overstated on the balance sheet as it was excluded from the ending inventory count.

Quiz 6: Inventories

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this NOT have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2019 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2019 financial reporting?

Assume that ending inventory in fiscal 2019 is overstated by $1,000.What impact will this have on fiscal 2020 financial reporting?

Assume that a $500 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2019 financial reporting?