During the taking of its physical inventory, a company inadvertently counted its inventory as $98,000 instead of the correct amount of $89,000. Indicate the effect of the misstatement on the balance sheet of the current year

Question

Business

Angelica Goodman

25 April, 11:37

During the taking of its physical inventory, a company inadvertently counted its inventory as $98,000 instead of the correct amount of $89,000. Indicate the effect of the misstatement on the balance sheet of the current year

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Isla Frederick · Answer 1

The misstatement would result in the overstatement of assets by $9,000 and also an overstatement of stockholders equity by the same amount.

Explanation:

When the balance of year end inventory is overstated, the cost of goods sold will be understated and this will result in an overstatement of the net income (and by extension, owners equity).

Given that a company inadvertently counted its inventory as $98,000 instead of the correct amount of $89,000

Amount overstated = $98,000 - $89,000

= $9,000