During the taking of its physical inventory on December 31, 2019, Waterjet Bath Company incorrectly counted its inventory as $728,660

During the taking of its physical inventory on December 31, 2019, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. 

Indicate the effect of the misstatement on Waterjet Bath’s December 31, 2019, balance sheet and income statement for the year ended December 31, 2019.

Answer:

Balance Sheet: Merchandise inventory overstated*........................ Current assets overstated.................................... Total assets overstated....................................... Owner’s equity overstated.................................... Income Statement: Cost of merchandise sold understated.................. Gross profit overstated....................................... Net income overstated.......................................... * $728,660 – $719,880 = $8,780 Amount of Misstatement Overstatement (Understatement) 8,780 $ 8,780 8,780