Question 1

Counterbalancing errors are those that are not offset in the next accounting period.

Accepted Answer

A) True 
 B)False  False

Question 2

An understatement of the ending inventory will cause cost of goods sold to be understated and net income to be overstated for that period.

Accepted Answer

A) True 
 B)False  False

Question 3

On June 15, 2008, Tolon Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2008 would be

Accepted Answer

A)  assets and stockholders' equity were overstated but liabilities were not affected. 
B)  stockholders' equity was the only item affected by the omission. 
C)  assets, liabilities, and stockholders' equity were understated. 
D)  none of these. 
A)  assets and stockholders' equity were overstated but liabilities were not affected. 
B)  stockholders' equity was the only item affected by the omission. 
C)  assets, liabilities, and stockholders' equity were understated. 
D)  none of these. D

Question 4

Cross Co. accepted delivery of merchandise which it purchased on account. As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

Accepted Answer

A)  net income, current assets, and retained earnings were understated. 
B)  net income was correct and current assets were understated. 
C)  net income was understated and current liabilities were overstated. 
D)  net income was overstated and current assets were understated. 
A)  net income, current assets, and retained earnings were understated. 
B)  net income was correct and current assets were understated. 
C)  net income was understated and current liabilities were overstated. 
D)  net income was overstated and current assets were understated.

Question 5

The ending inventory of Bonie Company is understated in year one by $20,000. This error is not corrected in year one or in year two. What impact will this error have on total net income for years one and two combined?

Accepted Answer

A)  No effect on total net income for the two years 
B)  Overstate total net income by $20,000 
C)  Understate total net income by $20,000 
D)  Overstate net income for year one by $20,000 and year two by $20,000 for a total overstatement of $40,000 
A)  No effect on total net income for the two years 
B)  Overstate total net income by $20,000 
C)  Understate total net income by $20,000 
D)  Overstate net income for year one by $20,000 and year two by $20,000 for a total overstatement of $40,000

Question 6

Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Accepted Answer

A)  net income, current assets, and retained earnings were overstated. 
B)  net income was correct and current assets were understated. 
C)  net income and current assets were overstated and current liabilities were understated. 
D)  net income, current assets, and retained earnings were understated. 
A)  net income, current assets, and retained earnings were overstated. 
B)  net income was correct and current assets were understated. 
C)  net income and current assets were overstated and current liabilities were understated. 
D)  net income, current assets, and retained earnings were understated.

Counterbalancing errors are those that are not offset in the next accounting period.

An understatement of the ending inventory will cause cost of goods sold to be understated and net income to be overstated for that period.

On June 15, 2008, Tolon Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2008 would be

Cross Co. accepted delivery of merchandise which it purchased on account. As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

The ending inventory of Bonie Company is understated in year one by $20,000. This error is not corrected in year one or in year two. What impact will this error have on total net income for years one and two combined?

Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Balance Sheet

Income Statement and Related Information

Statement of Cash Flows

Revenue Recognition

Cash and Receivables

Accounting for Inventories

Accounting for Property, Plant, and Equipment

Intangible Assets

Accounting for Liabilities

Stockholders Equity

Investments

Accounting for Income Taxes

Accounting for Compensation

Accounting for Leases

Additional Reporting Issues

Appendix A: Accounting and the Time Value of Money

Appendix B: Reporting Cash Flows

Appendix D: Retail Inventory Method

Appendix E: Accounting for Natural Resources

Appendix G: Accounting for Troubled Debt

Appendix H: Accounting for Derivative Instruments

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Exam 25: Appendix I: Error Analysis

Counterbalancing errors are those that are not offset in the next accounting period.

An understatement of the ending inventory will cause cost of goods sold to be understated and net income to be overstated for that period.

On June 15, 2008, Tolon Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2008 would be

Cross Co. accepted delivery of merchandise which it purchased on account. As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

The ending inventory of Bonie Company is understated in year one by $20,000. This error is not corrected in year one or in year two. What impact will this error have on total net income for years one and two combined?

Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Balance Sheet

Income Statement and Related Information

Statement of Cash Flows

Revenue Recognition

Cash and Receivables

Accounting for Inventories

Accounting for Property, Plant, and Equipment

Intangible Assets

Accounting for Liabilities

Stockholders Equity

Investments

Accounting for Income Taxes

Accounting for Compensation

Accounting for Leases

Additional Reporting Issues

Appendix A: Accounting and the Time Value of Money

Appendix B: Reporting Cash Flows

Appendix D: Retail Inventory Method

Appendix E: Accounting for Natural Resources

Appendix G: Accounting for Troubled Debt

Appendix H: Accounting for Derivative Instruments

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