During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly

During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. Indicate the effect of the misstatement on Waterjet Bath’s December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory overstated*……………………
Current assets overstated………………………………
Total assets overstated…………………………………
Owner’s equity overstated………………………………
Income Statement:
Cost of merchandise sold understated………………
Gross profit overstated……………………………………
Net income overstated…………………………………
* $728,660 – $719,880 = $8,780
Amount of Misstatement
Overstatement (Understatement)
$8,780
8,780
8,780
8,780
$(8,780)
8,780
8,780