Chiang Ltd. is a manufacturing company based in Fredericton, New Brunswick. During the current year, Chiang’s staff made a number of errors related to inventory, which follow.

1. Raw materials that were in transit at year end were excluded from inventory. The goods had been purchased FOB shipping point. The transaction has not been recorded.

2. Some goods were damaged after a leak in the warehouse, but were not written down to their NRV (which was lower than their cost).

3. Goods held on consignment for another company were included in Chiang’s inventory.

4. Some goods were double-counted during the inventory count.

Required

For each of the above errors, indicate the effect they would have on the financial statements and ratios indicated in the table below. Specifically, indicate whether the error would result in the financial statement element or ratio being overstated, understated, or not affected by the error. Chiang uses a periodic inventory system.

Transcribed Image Text:

Current Retained Inventory Turnover Cost of Sales Gross Margin Ratio Inventory Earnings 1. 2. 3. 4. 4,