During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly

During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly counted its inventory as $113,900 instead of the correct amount of $118,350. Indicate the effect of the misstatement on Sport Interiors’ December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory understated*…………………
Current assets understated………………………………
Total assets understated………………………………
Owner’s equity understated……………………………
Income Statement:
Cost of merchandise sold overstated…………………
Gross profit understated………………………………
Net income understated…………………………………
* $118,350 – $113,900 = $4,450
Amount of Misstatement
Overstatement (Understatement)
$(4,450)
(4,450)
(4,450)
(4,450)
$ 4,450
 (4,450)
 (4,450)