1. A Bookkeeper prepared the year end financial statements of Giftwrap,Inc. The income statement showed net income of $3,900, and the balance sheet showed beginning retained earnings of $39,200. no dividends were declared or paid during the year. The firm's accountant reviewed the bookkeeper's work and determined that adjusting entries should be made that would increase revenues by $2,200, and decrease expenses by $900. What will be the amount of net income after the above adjustments are recorded? What was the ending retained earnings balance on the balance sheet prepared by the bookkeeper? What is the correct ending balance in retained earnings to be reported in the balance sheet?

2. Assume that the company does not keep track of the physical items sold and does not record the cost of an item sold at the time that the sale is recorded. Assume also that the company does actually count (and determine the cost of) its inventory at the end of every accounting period. Construct a model (i.e, equation) that this company could use to calculate the cost of goods sold at the end of the period.

3. If the beginning balance of the inventory account and the cost of items purchased or made during the period were correct, but an error resulted in understating the firm's ending inventory balance by $4,000, would the firm's net income be affected? If yes, explain the amount and direction (overstated-too high or understated-too low) of the effect on net income.