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

Khanna made the following errors in determining its ending inventory:
1. The ending inventory account balance at December 31, 2015, included $20,000 of goods held on consignment for Leblanc Company.
2. The ending inventory account balance at December 31, 2016, did not include goods that were purchased for $30,000 and shipped on December 30, 2016, 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 2015, 2016, and 2017:
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 2015, 2016, and 2017.
Taking It Further
If the merchandise inventory balance is correct as at December 31, 2017, is it necessary to correct the errors in the previous years' financial statements? Explain.

Transcribed Image Text:

2017 2016 2015 S575,000 525,000 250,000 300,000 40,000 Total assets Owner's equity $600,000 280,000 Cost of goods sold315,000 60,000 275,000 335,000 50,000 Profit