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3 December, 18:10

During the taking of its physical inventory on December 31, 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 and retained earnings overstated by $70,000 and net income understated by $70,000.

c. assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement.

d. assets, retained earnings, and net income all overstated by $70,000.

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Answers (2)
  1. 3 December, 18:31
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    363,423
  2. 3 December, 18:40
    0
    The correct answer is B.

    Explanation:

    If your inventory is miss-accounting and reflected in accounting items, the company has to make a corrective entry that reflects the true value of its assets. Therefore, it must expose the asset and retained earnings and the underestimated value of net earnings of $70,000.

    Have a nice day!
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