Effect of Errors in Physical Inventory

Missouri River Supply Co$.$ sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December $31,20$Y$2,$ Missouri River Supply incorrectly counted its inventory as $$695,340$ instead of the correct amount of $$716,200.$

Enter all amounts as positive numbers.

a$.$ State the effect of the error on the December $31,20Y2,$ balance sheet of Missouri River Supply.

$\backslash$table$[[$Balance Sheet Items,Understated$/$Overstate$],[$Merchandise Inventory,Understated$],[$Current Assets,Understated$],[$Total Assets,Understated$],[$Owner$\text{'}$s Equity,Understated$]]$

b$.$ State the effect of the error on the income statement of Missouri River Supply for the year ended December $31,20$ Y$2.$

$\backslash$table$[[$Income Statement Items,Overstated$/$Understated$],[$Cost of Merchandise Sold,Overstated$],[$Gross Profit,Understated$],[$Net Income,Understated$]]$

c$.$ If uncorrected, what would be the effect of the error on the $20Y3$ income statement?

$\backslash$table$[[$Income Statement Items,Overstated$/$Understate$],[$Cost of Merchandise Sold,Understated$],[$Gross Profit,Overstated$],[$Net Income,Overstated$]]$

d$.$ If uncorrected, what would be the effect of the error on the December $31,20Y3,$ balance sheet?

The December $31,20Y3,$ balance sheet would be correct, since the $20Y2$ inventory error reverses itself in $20Y3.$

The December $31,20Y3,$ balance sheet would be incorrect, since the $20Y2$ inventory error overstates the beginning inventory in $20Y3.$