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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.

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  1. 18 November, 23:15
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    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
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