Grosswerder Ltd. (Grosswerder) is a small manufacturing company. During the fiscal year just ended, a number of errors were made in accounting for inventory. For each of the following errors, indicate their effect on the financial statement elements and ratios shown in the table below. Indicate whether the financial statement element or ratio would be overstated (higher than it would have been had the error not occurred), understated (lower than it would have been had the error not occurred), or not affected by the error. Grosswerder uses a periodic inventory control system.
The ratios before considering the adjustments are shown in brackets in the following table.
a. Some of the inventory in Grosswerder's warehouse was counted twice during the year-end inventory count.
b. Certain costs that are normally included in inventory were expensed as incurred (and not included in cost of sales). Some inventory relating to these costs was on hand at the end of the year.
c. Inventory that was being held at a third-party warehouse wasn't included in the inventory count.
d. Damaged inventory that can't be sold was included in the year-end inventory balance.
e. Some inventory wasn't included in the inventory count because it had been shipped to a customer before the year-end. Revenue is recognized when merchandise is delivered tocustomers.

  • CreatedFebruary 26, 2015
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