Question

(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.

2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect

1. Failure to record amortization of patent in 2018.

2. Failure to record the correct amount of ending 2017 inventory. The amount was understated because of an error in calculation.

3. Failure to record merchandise purchased in 2017. Merchandise was also omitted from ending inventory in 2017 but was not yet sold.

4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.

5. Failure to reflect supplies on hand on the balance sheet at end of 2017.

Short answer

The raw material used for production and the finished goods is considered inventory. The table showing the effects is prepared below in step 2.

Step-by-step solution

Definition of inventory

Inventory is defined as the raw materials used in the production process or finished goods that can be sold to the customers

Table showing the effects

	2017			2018
Item	Overstatement	Understatement	No effect	Overstatement	Understatement	No effect
1.		ü		ü
2.		ü		ü
3			ü			ü
4.	ü				ü
5			ü	ü