EBK FINANCIAL & MANAGERIAL ACCOUNTING
13th Edition
ISBN: 9780100545052
Author: WARREN
Publisher: YUZU
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Chapter 6, Problem 6.19EX
To determine
Inventory error:
Inventory errors are sometimes caused by making mistake, in physical count, in pricing the inventory correctly, or in recognizing the transfer of title for the goods in transit. These inventory errors affect both the income statement as well as the
To state: if the assumption of accountant has any flaws.
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During 20Y5, the accountant discovered that the physical inventory at the end of 20Y4 had been understated by $42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 20Y5. Are there any flaws in the accountant’s assumption? Explain.
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In 2016, the internal auditors of Development Technologies, Inc. discovered that a $4 million purchase of merchandise in 2016 was recorded in 2015 instead. The physical inventory count at the end of 2015 was correct. Required: Prepare the journal entry needed in 2016 to correct the error. Also, briefly describe any other measures Development Technologies would take in connection with correcting the error. (Ignore income taxes.)
Chapter 6 Solutions
EBK FINANCIAL & MANAGERIAL ACCOUNTING
Ch. 6 - Before inventory purchases are recorded, the...Ch. 6 - Why is it important to periodically take a...Ch. 6 - Do the terms FIFO, LIFO, and weighted average...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Which of the three methods of inventory...Ch. 6 - If inventory is being valued at cost and the price...Ch. 6 - Using the following data, how should the inventory...Ch. 6 - Prob. 8DQCh. 6 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 6 - A manufacturer shipped merchandise to a retailer...
Ch. 6 - Prob. 6.1APECh. 6 - Prob. 6.1BPECh. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using UFO Beginning inventory,...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using weighted average...Ch. 6 - Perpetual inventory using weighted average...Ch. 6 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 6 - Periodic inventory using FIFO, UFO, and weighted...Ch. 6 - Prob. 6.6APECh. 6 - Lower-of-cost-or-market method On the basis of the...Ch. 6 - Prob. 6.7APECh. 6 - Prob. 6.7BPECh. 6 - Inventory turnover and number of days' sales in...Ch. 6 - Inventory turnover and number of days' sales in...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Prob. 6.2EXCh. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and LIFO costs under perpetual Inventory...Ch. 6 - Prob. 6.8EXCh. 6 - Prob. 6.9EXCh. 6 - Prob. 6.10EXCh. 6 - Prob. 6.11EXCh. 6 - Prob. 6.12EXCh. 6 - Periodic inventory by three methods; cost of...Ch. 6 - Comparing inventory methods Assume that a firm...Ch. 6 - Lower of cost or market inventory On the basis of...Ch. 6 - Merchandise inventory on the balance sheet Based...Ch. 6 - Effect of errors in physical inventory Missouri...Ch. 6 - Effect of errors in physical inventory Fonda...Ch. 6 - Prob. 6.19EXCh. 6 - Prob. 6.20EXCh. 6 - Prob. 6.21EXCh. 6 - Prob. 6.22EXCh. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method On the basis of the following data,...Ch. 6 - Gross profit method The inventory was destroyed by...Ch. 6 - Prob. 6.27EXCh. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - Prob. 6.2APRCh. 6 - Prob. 6.3APRCh. 6 - Prob. 6.4APRCh. 6 - Prob. 6.5APRCh. 6 - Prob. 6.6APRCh. 6 - Prob. 6.7APRCh. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - Prob. 6.2BPRCh. 6 - Weighted average cost method with perpetual...Ch. 6 - Prob. 6.4BPRCh. 6 - Prob. 6.5BPRCh. 6 - Prob. 6.6BPRCh. 6 - Retail method; gross project method Selected data...Ch. 6 - Prob. 6.1CPCh. 6 - Prob. 6.2CPCh. 6 - Costing inventory Golden Eagle Company begun...Ch. 6 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 6 - Prob. 6.5CPCh. 6 - Prob. 6.6CP
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- Company Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forwardIf Wakowski Companys ending inventory was actually $86,000 but was adjusted at year end to a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardCompany Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forward
- If a group of inventory items costing $3,200 had been double counted during the year-end inventory count, what impact would the error have on the following inventory calculations? Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______. Table 10.2arrow_forwardIn 2016, the internal auditors of Development Technologies, Inc., discovered that (a) 2015 accrued wages of $2 million were not recognized until they were paid in 2016 and (b) a $3 million purchase of merchandise in 2016 was recorded in 2015 instead. The physical inventory count at the end of 2015 was correct. Ignoring income taxes, what journal entries are needed in 2016 to correct each error? Also, briefly describe any other measures Development Technologies would take in connection with correcting the errors.arrow_forwardThis is a multiple answer question. Duncan Company miscounted its ending inventory during the December 31, 2025 physical count. Which items will be wrong on the 2025 financial statements assuming this mistake is not discovered until the next year? (Choose all that apply). A. Noncurrent assets B. Net income C. Inventory D. Liabilities E. Cost of goods soldarrow_forward
- While examining the December 31, 2010 financial statements of Dawn Company, the following errors are discovered: Inventory at January 1 had been overstated by P50,000.; Inventory at December 31 was understated by P100,000.; During 2010, Dawn received a P200,000 cash advance from customer for merchandise to be manufactured and shipped during 2011. The collection was credited to sales revenue.; The net income reported on the 2010 income statement before reflecting any adjustments for the above items is P5,000,000. What is the corrected net income for the year ended December 31, 2010? Choices; 4,950,000 5,150,000 5,100,000 4,850,000arrow_forwardDuring 2016, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2014 understated by $120,000 2015 overstated by 150,000 WMC uses the periodic inventory system and the FIFO cost method. Required: 1. Determine the effect of these errors on retained earnings at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error?arrow_forwardWhich of the following statements on inventory valuation errors is false? a. Over a two-year period, misstatements of ending inventory will balance themselves out. b. An overstatement of ending inventory overstates net income. c. An understatement in net income is the result of an overstatement in cost of goods sold. d. An overstatement of cost of goods sold overstates ending inventory.arrow_forward
- 2. Gabriela Company’s auditor discovered that the company inadvertently overstated ending Inventory for the prior year. If the error is not corrected, what effect will the error have on the following financial statement items for both the prior year and the current year? Indicate in each box a “+" (plus) if the item is overstated, a “-“ (minus) if the item is understated, and a “N/A" if there is no effect on the item. Prior Year Current Year Effect on Income Statement Goods Available for Sale Cost of Goods Sold Gross Profit Net Income Effect on Balance Sheet Inventory on 12/31 Retained Earningsarrow_forwardThe accountant for Angie Company made the following errors related to purchases of merchandise and ending inventory in 2016: 1. A $2,200 purchase of merchandise on credit was not recorded or included in ending inventory. 2. A $3,180 purchase of merchandise on credit was recorded, but it was inadvertently omitted from the end-of-year physical inventory count. Assuming a periodic inventory system, Angie's Company's 2016 net income will be a. overstated by $5,380. b. overstated by $3,180. c. understated by $2,380. d. understated by $3,180.arrow_forwardThe accountant for Suzanne Company made the following errors related to inventory in 2020: 1. The beginning inventory for 2020 was overstated by $1,375 due to an error in the physical count. 2. A $1,650 purchase of merchandise on credit in 2020 was not recorded or included in the ending inventory. Assuming a periodic inventory system, how would Sue's cost of goods sold, gross profit, and net income be affected in 2020 by these errors? Set Cost of Goods Sold Gross Profit Net Income I. Overstated Understated Understated II. Overstated Understated No effect III. Understated Overstated Overstated IV. No effect No effect No effect a. Set I b. Set II c. Set III d. Set IVarrow_forward
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