Analyzing Impact of Inventory Errors on Reporting

The records of Largo Company reveal the following.

Sales revenue		$100
Cost of goods sold
Beginning inventory	$200
Purchases	300
Goods available for sale	400
Ending inventory	500	600
Gross margin		700
Operating expenses		800
Income (pretax)		900

The following errors were found and they have not been corrected.

1. Revenues collected in advance of $4,000 are included in Sales Revenue. 2. Accrued operating expenses not recognized of $5,600. 3. Goods costing $8,000 are incorrectly included in ending inventory (they are being held on consignment from Carter Inc.). No purchase was recorded. 4. Goods costing $4,000 are correctly included in ending inventory; however, no purchase was recorded (assume a credit purchase).

a. Prepare a revised income statement on a correct basis.

Note: Do not use negative signs with your answers.

Sales revenue		Answer
Cost of goods sold
Beginning inventory	Answer
Purchases	Answer
Goods available for sale	Answer
Ending inventory	Answer	Answer
Gross margin		Answer
Operating expenses		Answer
Income (pretax)		Answer

b. Identify incorrect amounts on the balance sheet if the errors were not corrected.

Note: If a correction is not required, select "N/A" and leave the amount answer blank (zero).

Account	Overstated or Understated	Amount
Cash	Answer

Answer
Inventory	Answer

Answer
Accounts receivable	Answer

Answer
Accounts payable	Answer

Answer
Deferred revenue	Answer

Answer
Accrued expenses	Answer

Answer
Retained earnings	Answer

Answer