During the Taking of Its Physical Inventory on December 31

question 55

Multiple Choice

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be

• A) assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000
• B) assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
• C) assets, retained earnings, and net income all overstated by $70,000
• D) assets and retained earnings overstated by $70,000; and net income understated by $70,000