INTRO TO CANADIAN FINANCIAL ACCOUNTING - Please explain for each incident (1-5); Why the assets, Profits & retained earnings have either NE(no effect) , Understated , Overstated [SOLUTIONS ARE POSTED BELOW THE QUESTION (2nd photo) The internal auditors discovered that the ending inventory in the previous period was understated $15,000 and that the ending inventory in the current period was overstated $25,000. Solution Explanation of events having their effects on Assets, Equity, COGS or Profits &Retained Earnings. The ending inventory in the previous period was overstated. This will overstate the COGS and Understate the Profit of the current period. Closing inventory of previous period is opening inventory for current period and a debit to the COGS. If that is Overstated , COGS will be overstated . When COGS is overstated , the Profit will be understated as a result. A physical count at the current year end has counted some stock twice. So Inventoryaccount is overstated. Inventory is Asset account , so Asset will be overstated. Closing Inventory is treated as credit to COGS, so credit to COGS will be more and COGS will be Understated. If COGS is understated , Profit for current year will be overstated , the Retained Earning will also be overstated and the Equities and Reserve will be overstated as a result as the retained earning is transferred to Equities andReserve. Goods purchased on FOB shipping point term. So title of goods transferred to buyer. It should have been treated as closing stock, but not counted in year end closing stock inventory. But the purchase has been recorded . So, Year end Closing Inventory will be understated , as inventory in Asset, Asset will be understated. The purchase has been debited to COGS but the credit of Closing inventory has bnot been given to COGS , so COGS will be Overstated. As COGS is overstated, Profit and Retained earning will be Understated and therefore Equities and Reserves will be understated as the retained earning is transferred to Equities andReserve. Here the purchase on account in Dec is on FOB destination term and the goods not received at the receiver’s receiving dock. So the closing inventory has not been counted correctly as the title of the goods not passed to the buyer . Therefore closing inventory and Asset accounts will not be affected. But the purchase has been recorded wrongly , so COGS will be overstated and Profit and Retained earning for the year will be understated due to inflated COGS. As a result of understated Retained earning Equities and Reserve will also be understated as the retained earning is transferred to Equities andReserve. The ending inventory of the current year is overstated, so Inventory and Asset accounts will be overstated. The ending inventory of previous period or the opening inventory of the current period is understated. Opening inventory is debit to current year COGS. So current year COGS will be understated. As a result of understated COGS , current yea.

1. INTRO TO CANADIAN FINANCIAL ACCOUNTING -
Please explain for each incident (1-5); Why the assets, Profits & retained earnings have either
NE(no effect) , Understated , Overstated
[SOLUTIONS ARE POSTED BELOW THE QUESTION (2nd photo)
The internal auditors discovered that the
ending inventory in the previous period
was understated $15,000 and that the
ending inventory in the current period was
overstated $25,000.
Solution
Explanation of events having their effects on Assets, Equity, COGS or Profits &Retained
Earnings.
The ending inventory in the previous period was overstated. This will overstate the COGS and
Understate the Profit of the current period. Closing inventory of previous period is opening
inventory for current period and a debit to the COGS. If that is Overstated , COGS will be
overstated . When COGS is overstated , the Profit will be understated as a result.
A physical count at the current year end has counted some stock twice. So Inventoryaccount is
overstated. Inventory is Asset account , so Asset will be overstated. Closing Inventory is treated
as credit to COGS, so credit to COGS will be more and COGS will be Understated. If COGS is
understated , Profit for current year will be overstated , the Retained Earning will also be
overstated and the Equities and Reserve will be overstated as a result as the retained earning is
transferred to Equities andReserve.
Goods purchased on FOB shipping point term. So title of goods transferred to buyer. It should
have been treated as closing stock, but not counted in year end closing stock inventory. But the
purchase has been recorded . So, Year end Closing Inventory will be understated , as inventory
in Asset, Asset will be understated. The purchase has been debited to COGS but the credit of
Closing inventory has bnot been given to COGS , so COGS will be Overstated. As COGS is
overstated, Profit and Retained earning will be Understated and therefore Equities and Reserves
will be understated as the retained earning is transferred to Equities andReserve.
Here the purchase on account in Dec is on FOB destination term and the goods not received at
the receiver’s receiving dock. So the closing inventory has not been counted correctly as the title
of the goods not passed to the buyer . Therefore closing inventory and Asset accounts will not be

2. affected. But the purchase has been recorded wrongly , so COGS will be overstated and Profit
and Retained earning for the year will be understated due to inflated COGS. As a result of
understated Retained earning Equities and Reserve will also be understated as the retained
earning is transferred to Equities andReserve.
The ending inventory of the current year is overstated, so Inventory and Asset accounts will be
overstated.
The ending inventory of previous period or the opening inventory of the current period is
understated. Opening inventory is debit to current year COGS. So current year COGS will be
understated.
As a result of understated COGS , current year Profit and retained earning will be overstated and
the Equities and Reserve will be overstated as the retained earning is transferred to Equities and
Reserve.