For Each of the Following Independent Scenarios, Indicate the Effect

question 120

Essay

For each of the following independent scenarios, indicate the effect of the error (if any)on:
i.2019 net income;
ii.2020 net income; and
iii.2020 closing retained earnings
The company uses the periodic system of inventory and its fiscal year-end is December 31. Ignore income tax effects. Consider each of the following independent scenarios:
a. Your analysis of inventory indicates that inventory at the end of 2019 was overstated by $27,000 due to an inventory count error. Inventory at the end of 20 13 was correctly stated.
b. Invoices in the amount of $107,000 for inventory received in December 2019 were not entered on the books in 2019. They were recorded as purchases in January 2020 when they were paid. The goods were counted in the 2019 inventory count and included in ending inventory on the 2019 financial statements.
c. Goods received on consignment amounting to $89,000 were included in the physical count of goods at the end of 2020 and included in ending inventory on the 2020 financial statements.
d. For each of the three scenarios, provide the journal entry that should be recorded in 2020 to correct the error.

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Definitions:

Diversification

A risk management strategy that involves spreading investments across various financial instruments, industries, or other categories to reduce exposure to any single asset or risk.

Risk-Averse Investors

Investors who prioritize minimizing risk over maximizing returns, often choosing safer, lower-yield investments.

Uncertainty

The state of having limited knowledge where it is impossible to exactly describe the existing state, a future outcome, or more than one possible outcome.

Negatively Correlated

A relationship between two variables in which one variable increases as the other decreases.