Drafting Supplies Ltd

question 79

Essay

Drafting Supplies Ltd. sells its merchandise at a mark-up of 40 percent on cost. Near the end of 2012, it recorded a credit sale amounting to $7,000. Although this merchandise was not shipped, it was excluded from the December 31, 2012, periodic inventory. The auditor later determined that the sale was incorrectly recorded in 2012; it should have been recorded in 2013. The company uses 1 percent of credit sales as the amount to record for bad debt expense. Ignoring income taxes, the effect of this error was to (answer only one): Overstate 2012 income by $__________________________ or
Understate 2012 income by $________________________.

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Definitions:

Disaccharide

A type of sugar formed by the combination of two monosaccharides, such as lactose and sucrose.

Polysaccharides

Complex carbohydrates formed from chains of monosaccharides, playing critical roles in energy storage and structural functions in living organisms.

Disaccharide

A type of carbohydrate made up of two monosaccharide molecules bonded together.

Monosaccharide

The simplest form of carbohydrate, consisting of a single sugar molecule, such as glucose or fructose.