What effect if any will the error have on net income and owner's equity in 2004?

Problem Description: Following are condensed income statements for Uncle Bill's Home Improvement Center, for the years ended December 31, 2003, and 2002. 20032002 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $541,200 $523,600 Cost of Goods Sold: Beginning inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . $91,400 $85,300 Cost of goods purchased . . . . . . . . . . . . . . . . . . . . . . . 393,000 366,500 Cost of goods available for sale . . . . . . . . . . . . . . . . . . $484,400 $451,800 Less: Ending inventory . . . . . . . . . . . . . . . . . . . . . . . . . (79,800) (91,400) Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404,600 360,400 Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136,600 $163,200 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,700) (94,700) Net income (ignoring income taxes) . . . . . . . . . . . . . . . $32,900 $68,500 Uncle Bill was concerned about the operating results for 2003 and has asked his recently hired accountant, "If sales increased in 2003, why was income less than half of what it was in 2002?" In February of 2004, Uncle Bill got his answer, "The ending inventory reported in 2002 was overstated by $23,500 for merchandise that we were holding on consignment on behalf of Kirk's Servistar. We still keep some of their appliances in stock, but the value of these items was not included in the 2001 inventory count because we don't own them."

5 months ago - 1 answers