Reference no: EM131756217

Question: Effect of Errors in Physical Inventory

Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2016, Fonda Motorcycle Shop incorrectly counted its inventory as $337,500 instead of the correct amount of $328,850.

Enter all amounts as positive numbers.

a. State the effect of the error on the December 31, 2016, balance sheet of Fonda Motorcycle Shop.

Balance Sheet Items	Understated / Overstated	Amount
Merchandise Inventory	Overstated	$
Current Assets	Overstated	$
Total Assets	Overstated	$
Owner's Equity	Overstated	$

b. State the effect of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 2016.

Income Statement Items	Understated / Overstated	Amount
Cost of Merchandise Sold	Understated	$
Gross Profit	Overstated	$
Net Income	Overstated	$

c. If uncorrected, what would be the effect of the error on the 2017 income statement?

Income Statement Items	Understated / Overstated	Amount
Cost of Merchandise Sold	Overstated	$
Gross Profit	Understated	$
Net Income	Understated	$