A retailer completed a physical count of ending merchandise inventory. When counting inventory, employees did not include $3,100 of incoming goods shipped by a supplier on December 31 under FOB shipping point. These goods had been recorded in Merchandise Inventory, but they were not included in the physical count because they were in transit. This means shrinkage was incorrectly overstated by $3,100. Indicate whether the failure to include in-transit inventory as part of the physical count results in an overstatement, understatement, or no effect on the following ratios.

Exercise 4-13 Physical count error and profits LO A2 A retailer completed a physical count of ending merchandise inventory. When counting inventory, employees did not include $3,100 of incoming goods shipped by a supplier on December 31 under FOB shipping point. These goods had been recorded in Merchandise Inventory, but they were not included in the physical count because they were in transit. This means shrinkage was incorrectly overstated by $3,100. Indicate whether the failure to include in-transit inventory as part of the physical count results in an overstatement, understatement, or no effect on the following ratios. Gross margin ratio . b. Profit margin ratio Acid-test ratio . Current ratio d