During the taking of its physical inventory on December 31, 2008, Albert’s Bike Shop incorrectly counted it?

Question

1. During the taking of its physical inventory on December 31, 2008, Albert’s Bike Shop incorrectly counted its inventory as $210,000 instead of the correct amount of $180,000. The effect on the balance sheet and income statement would be as follows:
a.assets and retained earnings overstated by $30,000; net income understated by $30,000.
b.assets overstated by $30,000; retained earnings understated by $30,000; no effect on the income statement.
c.assets overstated by $30,000; retained earnings understated by $30,000; net income statement understated by $30,000.
d.assets and retained earnings overstated by $30,000; net income overstated by $30,000.

2. In a merchandise business, sales minus operating expenses equals net income. True or False

3. Which of the following accounts has a normal credit balance?
a.Sales
b.Merchandise Inventory
c.Delivery Expense
d.Sales Returns and Allowances

4. Sellers and buyers are required to record trade discounts.
True or False

Answer 1

1. During the taking of its physical inventory on December 31, 2008, Albert’s Bike Shop incorrectly counted its inventory as $210,000 instead of the correct amount of $180,000. The effect on the balance sheet and income statement would be as follows:
d.assets and retained earnings overstated by $30,000; net income overstated by $30,000.

2. In a merchandise business, sales minus operating expenses equals net income. False
Sales minus COGS minus op'g expenses equals net income.

3. Which of the following accounts has a normal credit balance?
a.Sales

4. Sellers and buyers are required to record trade discounts.
True
If there is a trade discount given, of course it has to be recorded or else the a/cs won't balance.

Answer 2

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