The records of Alyssa Company show the following amounts in its December 31 financial statements:

Alyssa Company made the following errors in determining its ending inventory:

1. The ending inventory account balance at December 31, 2019, included $20,000 of goods held on consignment for Gillies Company.

2. The ending inventory account balance at December 31, 2020, did not include goods sold and shipped on December 30, 2020, FOB destination. The selling price of these goods was $40,000 and the cost of these goods was $32,000. The goods arrived at the destination on January 4, 2021.

All purchases and sales of inventory were recorded in the correct fiscal year.

Instructions

a. Calculate the correct amount for each of the following for 2021, 2020, and 2019:

1. Total assets

2. Owner?s equity

3. Cost of goods sold

4. Profit

b. Indicate the effect of these errors (overstated, understated, or no effect) on cash at the end of 2019, 2020, and 2021.

As long as the merchandise inventory balance is correct as at December 31, 2021, is it necessary to correct the errors in the previous years? financial statements? Explain.

Transcribed Image Text:

2021 2019 2020 Total assets Owner's equity Cost of goods sold Profit $850,000 650,000 500,000 $925,000 750,000 550,000 90,000 $900,000 550,000 80,000 70,000