In 2020, Lincoln Logs (a Northern Peninsula logging company reported cost of goods sold of $274,500 and an ending inventory of $55,300. Cost of goods sold in 2021 was $287,400 and ending inventory then was also $55,300. Lincoln Logs has a December 31 year end.

After firing his accountant, Lincoln discovered that the physical count of inventory in 2020 was actually $44,600 and in 2021 it was $61,700. These should have been the numbers reported instead of the $55,300 for both years.

Required:

What is the effect of this on the profit Lincoln is currently reporting for 2021? (i.e. profit is currently under-or overstated by $XXX)

What is the effect of this on Lincoln's December 31, 2021 retained earnings balance?

Answer rating: 100% (QA)

Answer A The effect of this on the profit Lincoln is currently reporting for 2... View the full answer