Question: In its physical inventory count at its March 31, 2014, year end, Backspring Corporation excluded inventory that was being held on consignment for Backspring by

In its physical inventory count at its March 31, 2014, year end, Backspring Corporation excluded inventory that was being held on consignment for Backspring by another company. The merchandise was sold in the next year and the inventory was correctly stated at March 31, 2015.

Instructions

Ignoring income tax, indicate the effect of this error (overstated, understated, or no effect) on each of the following at year end:

In its physical inventory count at its March 31, 2014,

2015 2014 (a) Cash (b) Cost of goods sold (c) Profit (d) Retained earnings (e) Ending inventory (f) Gross profit margin ratio (30%) (g) Inventory turnover ratio (8 times)

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