Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 8

Refer to the information in Exercise 5-13 and explain how the error in the physical count affects the company's gross margin ratio and its profit margin ratio.
Reference: Exercise 5-13
A retail company recently completed a physical count of ending merchandise inventory to use in preparing adjusting entries. In determining the cost of the counted inventory, company employees failed to consider that $3,000 of incoming goods had been shipped by a supplier on December 31 under an FOB shipping point agreement. These goods had been recorded in Merchandise Inventory as a purchase, but they were not included in the physical count because they were in transit. Explain how this overlooked fact affects the company's financial statements and the following ratios: return on assets, debt ratio, current ratio, and acid-test ratio.