During the taking of its physical inventory on December 31, Almond Supplies Company incorrectly counted its inventory as $545,000 instead of the correct amount of $554,000. Indicate the effects of the misstatement on Almond Supplies Company's balance sheet and income statement for the year ended December 31.

Question

Business

Geovanni Wilson

18 November, 21:24

During the taking of its physical inventory on December 31, Almond Supplies Company incorrectly counted its inventory as $545,000 instead of the correct amount of $554,000. Indicate the effects of the misstatement on Almond Supplies Company's balance sheet and income statement for the year ended December 31.

+4

Answers (1)

Know the Answer?

Calvin · Answer 1

Answer and Explanation:

The effect of undervaluation of Inventory is shown below:-

Inventory Understated = Inventory counted + Correct value of inventory

= $545,000 - $554,000

= $9,000

Now, the effect of undervaluation of Inventory is

Cost of goods overstated by $9,000

Net income understated by $9,000

Retained earning understated by $9,000

Assets (Current assets - Inventory) understated by $9,000