Question

Review the consolidated balance sheet of Spin Master Corporation in Appendix III on the fundamental accounting principles volume 1 book. Identify an asset account that requires adjustment before annual financial statements can be prepared. What would be the effect on the income statement if this asset account were not adjusted.

Answer 1

One asset account that may require adjustment on Spin Master Corporation's balance sheet is the inventory account. If this account is not adjusted, it can affect the accuracy of the income statement by either understating or overstating the cost of goods sold, leading to misrepresentation of the company's profitability.

Step-by-step explanation:

The consolidated balance sheet of Spin Master Corporation in Appendix III on the fundamental accounting principles volume 1 book may require adjustment for an asset account before annual financial statements can be prepared. One example of such an asset account that may require adjustment is the inventory account.

If the inventory account is not adjusted, it may lead to an overstatement or understatement of the cost of goods sold on the income statement. This can affect the accuracy of the financial statements and misrepresent the company's profitability.

For example, if the inventory account is overvalued, the cost of goods sold will be understated, resulting in a higher net income. Conversely, if the inventory account is undervalued, the cost of goods sold will be overstated, resulting in a lower net income.