Impact of Accounting Errors on Financial Statement Items and Ratios

question 157

Essay

Impact of accounting errors on financial statement items and ratios
Cayman Corporation makes the following errors during the current year. Each error is an independent case.

Ending inventory is overstated by $1,120, but purchases are recorded correctly.

Both ending inventory and a purchase on account are understated in the same amount.


Ending inventory is correct, but a purchase on account was not recorded. (Assume the purchase of $880 was recorded in the following year).

Instructions
Indicate the effect of each error on working capital, the current ratio (assume the current ratio is greater than 1), retained earnings, and net income for the current year and the following year.

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Definitions:

Standard Normal

A normal distribution with a mean of 0 and a standard deviation of 1, used as a basis in statistical analysis for converting scores from any normal distribution.

Random Variable

A variable whose values depend on outcomes of a random phenomenon.

Standard Normal

A Gaussian distribution defined by a zero mean and a one standard deviation.

Random Variable

A numerical variable influenced by the randomness of an event.