Immersive Case Essay

1838 Words May 6th, 2016 8 Pages
Core 1 – Week 1 Immersive Case
Exhibit – Modern Design Co.

To: Asha
From: CPA
Date: January 10, 2015
Subject: Modern Design Co. (MD)

The following are explanations of the accounting issues as well as the analysis and recommendation to resolve the issue. Also included are the adjustments to the financial statements (Appendix A).

Barbor sofa order

Issue

On December 11, MD received an order for a total price of $22,100. Barbor Furniture Ltd. (Barbor) provided a deposit of $9,000 which was recorded as revenue when it was received on December 13. Barbor was not billed until January 2. The order was not shipped until after the year end on January 2. The remaining balance owing was recorded in accounts receivable and
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The accounts receivable should also be removed and sales would be reduced as well.

Impact on users

This will increase liabilities, as the deposit will be set up as deferred revenue on the balance sheet and income will decrease. This will increase inventory and decrease cost of sales. Accounts receivable and sales will decrease. The balance sheet and income statement will both be affected.

Lumber inventory

Issue

On December 31, MD purchased lumber costing $4,410 which was received that day; however, it was not included in the inventory count or in accounts payable. The issue is whether the inventory should be included in the December 31, 2014 year end or not until the lumber was put into production in January.

Analysis

According to ASPE 3031, inventories are assets:

1. Held for sale in the ordinary course of business;

The lumber was ordered, purchased and received on December 31. It is being held for a future sale as of the year end date. The terms of purchase are FOB destination.

2. In the process of production for such sale; or

The lumber was ordered and received on December 31 and was put into production on January 3.

3. In the form of materials or supplies to be consumed in the production process or in the rendering of services.

The lumber was put into production on January 3.

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