Reference no: EM132781232

Question - Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:

	2020	2019
Ending Inventory	$2,000 overstated	$3,000 overstated
Depreciation expense	$6,000 understated	$12,000 understated

Q1) Assume that the proper correcting entries were made at December 31, 2019. By how much will 2020 pre-tax income be overstated or understated?

$2,000 understated

$2,000 overstated

$6,000 overstated

$8,000 overstated

Q2) Assume that no correcting entries were made at December 31, 2019. Ignoring income taxes, by how much will retained earnings at December 31, 2020 be overstated or understated?

$4,000 understated

$6,000 overstated

$6,000 understated

$15,000 understated

Q3) On January 1, 2020, the merchandise inventory of Shoesmith Corp. was $600,000. During 2020, Shoesmith purchased $1,150,000 of merchandise and recorded sales of $1,350,000. The gross profit rate on these sales was 35%. What is the estimated dollar value of the inventory at December 31?

$877,500

$872,500

$562,500

$472,500