Irene uses a calendar-year accounting period and a periodic inventory system. Assume Irene had the following independent situations:Situation 1. Goods shipped to Irene by a vendor f.o.b. shipping point on 12-28-11 were in transit at 12-31-11. The goods cost $15,000. On 12-29-11, Irene recorded a credit purchase of $15,000.Situation 2. Goods shipped to Irene by a vendor f.o.b. destination on 12-28-11 were in transit at 12-31-11. The goods cost $7,000. On 01-04-12, the day the goods arrived, Irene recorded a credit purchase of $7,000.Situation 3. Goods shipped to Irene by a vendor f.o.b. shipping point on 12-29-11 were in transit at 12-31-11. The goods cost  $9,000. On 01-03-12, the day the goods arrived, Irene recorded a credit purchase of $9,000.Situation 4. Goods shipped by Irene to a customer f.o.b. destination on 12-30-11 were in transit at 12-31-11. The goods cost $8,000. On 12-30-11, Irene billed the customer and recorded a credit sale of $20,000.Situation 5. Goods shipped by Irene to a customer f.o.b. shipping point on 12-29-11 were in transit at 12-31-11. The goods cost $20,000. On 12-29-11, Irene billed the customer and recorded a credit sale of $45,000. The customer received the goods on 01-04-12.Situation 6. Goods shipped by Irene to a customer f.o.b. destination on 12-29-11 were in transit at 12-31-11. The goods cost $12,000. On 01-15-12, Irene billed the customer and recorded a credit sale of $25,000. The customer received the goods on 01-15-12. Assume Irene values the inventory reported on its balance sheet and the amount recorded as cost of goods sold on its income statement on the basis of its physical inventory count that Irene performed on 12-31-11.  Irene counts whatever is on its premises.  Individually discuss the effect (in dollars and direction, e.g., overstate, understate, no effect) that each of the above items has on:Irene’s sales revenue for the year ended 12-31-11Irene’s cost of goods sold for the year ended 12-31-11Irene’s accounts receivable as of 12-31-11Irene’s inventory as of 12-31-11Irene’s accounts payable as of 12-31-11Irene’s stockholders’ equity as of 12-31-11

Question
Asked Nov 4, 2019

 Irene uses a calendar-year accounting period and a periodic inventory system. Assume Irene had the following independent situations:

  • Situation 1. Goods shipped to Irene by a vendor f.o.b. shipping point on 12-28-11 were in transit at 12-31-11. The goods cost $15,000. On 12-29-11, Irene recorded a credit purchase of $15,000.
  • Situation 2. Goods shipped to Irene by a vendor f.o.b. destination on 12-28-11 were in transit at 12-31-11. The goods cost $7,000. On 01-04-12, the day the goods arrived, Irene recorded a credit purchase of $7,000.
  • Situation 3. Goods shipped to Irene by a vendor f.o.b. shipping point on 12-29-11 were in transit at 12-31-11. The goods cost  $9,000. On 01-03-12, the day the goods arrived, Irene recorded a credit purchase of $9,000.
  • Situation 4. Goods shipped by Irene to a customer f.o.b. destination on 12-30-11 were in transit at 12-31-11. The goods cost $8,000. On 12-30-11, Irene billed the customer and recorded a credit sale of $20,000.
  • Situation 5. Goods shipped by Irene to a customer f.o.b. shipping point on 12-29-11 were in transit at 12-31-11. The goods cost $20,000. On 12-29-11, Irene billed the customer and recorded a credit sale of $45,000. The customer received the goods on 01-04-12.
  • Situation 6. Goods shipped by Irene to a customer f.o.b. destination on 12-29-11 were in transit at 12-31-11. The goods cost $12,000. On 01-15-12, Irene billed the customer and recorded a credit sale of $25,000. The customer received the goods on 01-15-12.

 

Assume Irene values the inventory reported on its balance sheet and the amount recorded as cost of goods sold on its income statement on the basis of its physical inventory count that Irene performed on 12-31-11.  Irene counts whatever is on its premises.  Individually discuss the effect (in dollars and direction, e.g., overstate, understate, no effect) that each of the above items has on:

  • Irene’s sales revenue for the year ended 12-31-11
  • Irene’s cost of goods sold for the year ended 12-31-11
  • Irene’s accounts receivable as of 12-31-11
  • Irene’s inventory as of 12-31-11
  • Irene’s accounts payable as of 12-31-11
  • Irene’s stockholders’ equity as of 12-31-11
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Expert Answer

Step 1

Effects of given situatio...

Irene's
Irene's COGS for Irene's AR as
year ended 12-31-11 year ended 12-31-11 of 12-31-11
Irene's AP as Irene's SE as
Irene's sales for
inventory as of
Situation
of 12-31-11
of 12-31-11
12-31-11
No effect
Understated
$15000
No effect
Understated
$9000
No effect
No effect
No effect
No effect
Understated
$15000
No effect
Understated
$9000
No effect
No effect
1
No effect
No effect
No effect
No effect
No effect
No effect
No effect
No effect
2
No effect
Understated $45000
No effect
No effect
Understated
$45000
Overstated
$25,000
No effect
Understated
$45000
4
Understated 20000
No effect
5
Overstated $25,000
Overstated $12,000
Understated
$12000
No effect
Overstated
6
$13,000
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Irene's Irene's COGS for Irene's AR as year ended 12-31-11 year ended 12-31-11 of 12-31-11 Irene's AP as Irene's SE as Irene's sales for inventory as of Situation of 12-31-11 of 12-31-11 12-31-11 No effect Understated $15000 No effect Understated $9000 No effect No effect No effect No effect Understated $15000 No effect Understated $9000 No effect No effect 1 No effect No effect No effect No effect No effect No effect No effect No effect 2 No effect Understated $45000 No effect No effect Understated $45000 Overstated $25,000 No effect Understated $45000 4 Understated 20000 No effect 5 Overstated $25,000 Overstated $12,000 Understated $12000 No effect Overstated 6 $13,000

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