Question
In 2020, the controller of the Guerin Co. discovered the following three material errors related to the 2018 and 2019 financial statements. Inventory at the
In 2020, the controller of the Guerin Co. discovered the following three material errors related to the 2018 and 2019 financial statements.
- Inventory at the end of 2018 was overstated by $100,000.
- Late in 2019, a $300,000 inventory purchase was incorrectly recorded as a $100,000 inventory purchase. The invoice has not yet been paid.
- Inventory at the end of 2019 was understated by $300,000.
The company uses a periodic inventory system.
Assuming that the errors were discovered after the 2019 financial statements were issued, analyze the effect of the errors on 2018 and 2019 retained earnings (R/E). Ignore income taxes.
2018 RE: Understated by 100,000; 2019 RE: Understated by 100,000
2018 RE: Overstated by 100,000; 2019 RE: Understated by 100,000
2018 RE: Understated by 100,000; 2019 RE: Understated by 200,000
2018 RE: Overstated by 100,000; 2019 RE: No error
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
New Markets Tax Credit IRS Audit Technique Guide
Authors: Internal Revenue Service
1st Edition
1304112896, 978-1304112897
