The CFO of the Jordan Microscope Corporation intentionally m

The CFO of the Jordan Microscope Corporation intentionally misclassified a downstream transportation expense in the amount of $575,000 as a product cost in an accounting period when the company made 5,000 microscopes and sold 4,000 microscopes. Jordan rewards its officers with bonuses that are based on net earnings. Required a. Indicate whether the elements on the financial statements (i.e., assets, liabilities, equity, revenue, expense, and net income) would be overstated or understated as a result of the misclassification of the downstream transportation expense. Determine the amount of the overstatement or understatement for each element. (If there is no effect select \"Not affected\" from the dropdown provided. Enter all answers as positive values.) Assets Liabilities Retained earnings Revenue Expense Net income

Solution

Transport expenses of $575000/- should be taken in the Income Statement at full value as Expenses.

Corporation has recorded $115000/- (575000*1000/5000) as product cost which overstated the Closing Stock (Assets). Consquently, Expenses has been understated, Net Income & Retained Earnings has also been overstated,

Assets Overstated $115000

Liabilited Not affected 0

Retained Earnings Overstated   $115000

Revenue Overstated   $115000

Expenses Underrstated   $115000

Net Income Overstated   $115000