This exercise will test your skill in analyzing inventory errors and determining their effects on the financial statements.

Four separate situations are described below:

  1. An error in the physical count on December 31, 20XA caused the inventory to be overstated.
  2. An error in the physical count on December 31, 20XA caused the inventory to be understated.
  3. An error in the physical count on December 31, 20XB caused the inventory to be overstated.
  4. An error in the physical count on December 31, 20XB caused the inventory to be understated.

Instructions

For each of the independent situations, explain the effect of each error by filling in the matrix with the proper code letters.