Final answer:
The incorrect inventory count at Barry's Bike Shop would lead to an overstatement of assets, net income, and retained earnings by $70,000, reflecting that all three financial statement figures are inaccurately high due to the error. Option b is correct answer.
Step-by-step explanation:
When Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000, the immediate effect on the financial statements would be an overstatement of assets on the balance sheet. The additional $70,000 that is recorded as inventory would increase the total assets by that amount.
However, the effect on the income statement and retained earnings requires considering how the ending inventory figures into the calculation of the cost of goods sold (COGS). An overstated inventory leads to a lower COGS, which would in turn increase the net income for the period because COGS is subtracted from sales to determine net income. If net income is overstated, then retained earnings, which is the accumulation of a company's net income minus any dividends, is also overstated.
Thus, the correct effect of the miscount would be: assets, retained earnings, and net income all overstated by $70,000, which corresponds to option (b). It's important to note that the error will only have this effect for the current period. Once the error is discovered and corrected, adjusting entries will have to be made to bring the financial statements to their accurate state.