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

Deveraux made the following errors in determining its ending inventory:
1. The ending inventory account balance at December 31, 2012, included $20,000 of goods held on consignment for Leblanc Company.
2. The ending inventory account balance at December 31, 2013, did not include goods that were purchased for $30,000 and shipped on December 30, 2013, FOB shipping point.
All purchases and sales of inventory were correctly recorded each year.
Instructions
(a) Calculate the correct amount for each of the following for 2012, 2013, and 2014:
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 2012, 2013, and 2014.
Taking It Further
If the merchandise inventory balance is correct as at December 31, 2014, is it necessary to correct the errors in the previous years' financial statements? Explain.

Transcribed Image Text:

2014 $600,000 280,000 315,000 60,000 2013 Total assets Owner's equity Cost of goods sold Profit 275,000 335,000 50,000 2012 $525,000 250,000 300,000 40,000