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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Effects of an Error in Ending Inventory

Waymire Company prepared the partial income statements presented below for 2019 and 2018.

Chapter 6, Problem 59E, Effects of an Error in Ending Inventory Waymire Company prepared the partial income statements

During 2020, Waymire’s accountant discovered that ending inventory for 2018 had been understated by $6,500.

Required:

1. Prepare corrected income statements for 2019 and 2018.

2. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item (ignore the effect of income taxes). Indicate whether each error is an overstatement (+) or an understatement (-).

To determine

Concept introduction:

Cost of goods Available for sale:

The Cost of goods Available for sale is the sum of beginning finished goods inventory and the cost of goods manufactured. The formula to calculate the Cost of goods Available for sale is as follows:

Cost of Goods Available for sale = Beginning inventory + Cost of Goods manufactured

Cost of Goods sold:

The Cost of goods sold is the difference of Cost of goods Available for sale and the Ending finished goods inventory. The formula to calculate the Cost of goods sold is as follows:

Cost of Goods sold = Cost of goods available for sale − Ending finished goods inventory

Or

Cost of Goods sold = Beginning inventory + Purchases − Ending inventory

Requirement 1:

To prepare:

The correct income statements for the year 2019 and 2018.

Explanation

The correct income statements for the year 2019 and 2018 are prepared as follows:

$ 2,019 $ 2,018
Sales revenue (A) $ 538,200 $ 483,700
Beginning Inventory (B) $ 45,800 $ 32,100
Purchases (C) $ 343,200 $ 292,700
Cost of Goods available for sale (D) = (B+C) $ 389,000 $ 324,800
En...
To determine

Concept introduction:

Cost of goods Available for sale:

The Cost of goods Available for sale is the sum of beginning finished goods inventory and the cost of goods manufactured. The formula to calculate the Cost of goods Available for sale is as follows:

Cost of Goods Available for sale = Beginning inventory + Cost of Goods manufactured

Cost of Goods sold:

The Cost of goods sold is the difference of Cost of goods Available for sale and the Ending finished goods inventory. The formula to calculate the Cost of goods sold is as follows:

Cost of Goods sold = Cost of goods available for sale − Ending finished goods inventory

Or

Cost of Goods sold = Beginning inventory + Purchases − Ending inventory

Requirement 2:

To prepare:

A schedule showing the effect of error on various items of the financial statement.

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