ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 5
Reporting & Analyzing Inventories
Dr. Fred Barbee

Solution to Short-Problem #1

Short Problem #1

Evaluate each (separate) inventory error and determine whether it overstates or understates each item.

Inventory Error Cost of Goods Sold Net Income

Understates beginning inventory

Understates ending inventory

Overstates beginning inventory

Overstates ending inventory

Solution

Inventory Error Cost of Goods Sold Net Income

Understates beginning inventory Understated Overstated

Understates ending inventory Overstated Understated

Overstates beginning inventory Overstated Understated

Overstates ending inventory Understated Overstated

Inventory Error	Cost of Goods Sold	Net Income
Understates beginning inventory
Understates ending inventory
Overstates beginning inventory
Overstates ending inventory