Evaluating the Effect of an Error on the Income Statement The accounting clerk for

Chapter 19, Problem 19-9

(choose chapter or problem)

Evaluating the Effect of an Error on the Income Statement

The accounting clerk for River’s Edge Canoe & Kayak prepared the  income statement for the year ended  December 31. The accounting supervisor at River’s Edge  noticed that the  balance of the Transportation In  account was erroneously omitted from this  statement. Transportation In has a balance of $562.

Instructions Use the income statement shown in your working papers to answer the following questions.

1. In which section of the income statement is the account Transportation In entered?

2. How is net purchases affected by this omission (understated or overstated)? By what amount?

3. How does the omission of the Transportation In balance affect gross profit on sales? By what amount?

4. What is the correct amount for the cost of merchandise sold for the period?

5. What is the correct amount for net income?

Determine the effect that an overstatement of expenses would have on net income.