A company uses the periodic inventory method and the beginning inventory is overstated by $4k because the ending inventory in the previous period was overstated by $4k. The amounts reflected in the current end of the period balance sheet are

Question

Business

Finn Hampton

4 January, 01:23

A company uses the periodic inventory method and the beginning inventory is overstated by $4k because the ending inventory in the previous period was overstated by $4k. The amounts reflected in the current end of the period balance sheet are

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Haylee Carpenter · Answer 1

The amounts reflected in the current end of the period balance sheet are of net profit - understated by $4,000, and that of inventory will be correct as closing inventory will be shown at fair value.

Explanation:

Net profit of current year will be under stated as opening inventory is overstated for the period and accordingly closing will also be overstated, for the current year if sales and purchases are properly reflected.

Current year end inventory balance is overstated by $4,000

Current year profit is understated by $4,000

But out of above two chances are more of Yearly profit being understated as during the year correction would have been made.

If all balances remain fair, at year end and only opening inventory is overstated by $4,000 then yearly profit would be understated by $4,000.

Final Answer

The amounts reflected in the current end of the period balance sheet are of net profit - understated by $4,000, and that of inventory will be correct as closing inventory will be shown at fair value.