Effect of Errors inPhysical Inventory

Madison River Supply Co. sells canoes, kayaks, whitewater rafts, and other boating supplies. During the taking of its physical inventory on December 31, 20Y8, Madison incorrectly counted its inventory as $657,080 instead of the correct amount of $676,790.

Enter all amounts as positive numbers.

a.State the effects of the error on the December 31, 20Y8, balance sheet of Madison River Supply.

Balance Sheet ItemsUnderstated/OverstatedAmountInventoryUnderstated

$fill in the blank 2

Current Assets

$fill in the blank 4

Total Assets

$fill in the blank 6

Stockholders' Equity

$fill in the blank 8

b.State the effects of the error on the income statement of Madison River Supply for the year ended December 31, 20Y8.

Income Statement ItemsOverstated/UnderstatedAmountCost of Goods Sold

$fill in the blank 10

Gross Profit

$fill in the blank 12

Net Income

$fill in the blank 14

c.If uncorrected, what would be the effects of the error on the 20Y9 income statement?

Income Statement ItemsOverstated / UnderstatedAmountCost of Goods Sold

$fill in the blank 16

Gross Profit

$fill in the blank 18

Net Income

$fill in the blank 20

d.If uncorrected, what would be the effects of the error on the December 31, 20Y9, balance sheet?

1. The balance sheet would be correct, because the 20Y8 inventory error reverses itself in 20Y9.
2. The income for 20Y9 would be understated.
3. The current assets in 20Y9 would be overstated.
4. The current assets in 20Y9 would be understated.