Example 2: A firm's Dec. 31st year-end balance sheet showed $72,000 of inventory. The firm uses the perpetual inventory system. After reviewing the firm's records, the auditor noted the following items which had not been included when calculating this amount because it was not in the warehouse during the physical count:

 

• On Dec. 31st the firm was notified that $12,600 of inventory purchased on account from a wholesaler had been shipped on Dec. 30th, FOB shipping point. No journal entry recorded.

 

• On Dec. 31st, inventory costing $5,200 was shipped to a customer in Australia FOB destination. Sales Revenues were recorded at 50% mark-up on cost.

 

• On Dec. 31st, inventory costing $14,000 was shipped to a customer FOB shipping point. Sales Revenues were recorded at 50% mark-up on cost.

 

What is the effect of the errors in Example 2 on Assets, Liabilities, Equity, and Net Income? 

Answer rating: 100% (QA)

The inventory on the balance sheet was 72000 Additional inventory purchased but n... View the full answer