PROBLEM 8 INVENTORIES 1. You are examining the financial statements of DON JOHN CORPORATION which ends on December 31. DON JOHN CORP. uses the physical inventory system of accounting for inventory. In the course of your examination, you discovered the errors below. 1. Goods received in January 2005 were recorded as purchase on account in December 2004. The goods were included in the 2004 ending inventory. 2. The inventory at December 31, 2004 is understated as a result of errors in physical count. 3. Goods received in December 2004 were recorded as purchases when paid in 2005. The goods were excluded from the 2004 ending inventory. 4. The inventory at December 31, 2004 is overstated as a result of the inclusion of goods acquired on consignment. 5. Goods received in January 2005 were recorded as purchase on account in December 2004. The goods were excluded from the 2004 ending inventory. 6. Goods received in December 2004 were recorded as purchases when paid in 2005. The goods were included in the 2004 ending inventory. Enter the effect of the errors in the solution guide below. Use the following symbols: O-Overstated, U-Understated X-No effect 1 2 3 4 5 6 Income Statement- 2004 Purchases Cost of Sales Net income Balance Sheet- December 31, 2004 Inventory Accounts Payable RE before closing RE after closing Income Statement- 2005 Purchases Beginning inventory Ending inventory Cost of Sales Net income III Balance Sheet- December 31, 2005 Inventory Accounts Payable RE before closing RE after closing