Financial & Managerial Accounting
13th Edition
ISBN: 9781285866307
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 6.2EX
(a)
To determine
Control over inventory is a technique whereby the inventory is safeguarded as soon as the order of inventory is made. The two main objectives of control of inventory are:
- a) Safeguarding of inventory from theft and damage
- b) Recording and reporting inventory in the financial statement of the company.
To state: the procedure of tagging a control device with inventory items in the store is appropriate.
(b)
To determine
To state: the procedure of not locking the store’s stockroom is appropriate.
(c)
To determine
To state: the procedure of record the amount of inventory received from vendor’s invoice is appropriate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items:a. Because the shop carries mostly high-quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the store.b. Because the display area of the store is limited, only a sample of each piece of luggage is kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store’s stockroom. Because all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all mall employees.c. Whenever Hardcase Luggage Shop receives a shipment of new inventory, the items are taken directly to the stockroom. Hardcase’s accountant uses the vendor’s invoice to record the amount of inventory received.State whether each of these procedures is appropriate…
Case analysis 2
FTW corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. FTW has a staff of three purchasing agents, each of whom oversees a specific set of inventory items.
Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order, and which vendor to purchase from. When ordered inventory arrives at FTW, one of two receiving clerks matches the items, quantities, and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. FTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pats them by…
What internal control or procedure(s) would provide protection against the following threats?
A purchasing agent orders materials from a supplier that he partially owns
Receiving-department steal inventory and then claim the inventory was sent to the warehouse.
An unordered supply of laser printer paper delivered to the office is accepted and paid for because the “price is right.” After all of the laser printers are jammed, however, it becomes obvious that the “bargain” paper is of inferior quality.
The company fails to take advantage of a 1% discount for promptly paying a vendor invoice
Inventory records show that an adequate supply of copy paper should be in stock, but none is available on the supply shelf
Chapter 6 Solutions
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
Knowledge Booster
Similar questions
- Ethics and Inventory An electronics store has a large number of computers that use outdated technology in its inventory. These computers are reported at their cost. Shortly after the December 31 year end, the store manager insists that the computers can be sold for well over their cost. But the stores accountant has been told by the sales staff that it will be difficult to sell these computers for more than half of their inventory cost. Required: What are the consequences for the accountant of participating in a misrepresentation of the inventorys value?arrow_forwardItems Included in Inventory The following are several items that Golosow Companys controller has questioned regarding their inclusion in inventory: a. An invoice has been received for goods ordered. The goods were shipped FOB destination but have not been received. b. Purchases have been ordered and received (shipping terms were FOB destination), but no invoice has arrived. c. Product was shipped to a customer today, FOB destination, and the invoice mailed. d. Purchases are in the receiving department, but they are damaged and will be returned. e. Product is in the shipping department, and the invoice has not been mailed to the customer. Shipping terms are FOB shipping point. f. Golosow has inventory in its possession from Tate Company. The inventory is to be sold by Golosow under a consignment arrangement with Tate. Required: 1. For each of the preceding items, indicate whether Golosow should include them in inventory. Justify your answer. 2. Next Level Describe the basic criterion for including items in inventory.arrow_forwardThe business rules that constitute the purchases system for the Safe Buy Grocery Stores chain are similar at all the store locations. The purchase manager at each location is responsible for selecting his or her local suppliers. If the manager needs a product, he or she chooses a supplier. Each store follows the steps described here.1. The purchasing function begins with sales representatives from suppliers periodically observing the shelves and displays at each location and recognizing the need to restock inventory. Inventory declines by direct sales to the customers or by spoilage of perishable goods. In addition, the supplier’s sales representatives review obsolescence reports that the purchase manager prepares. These reports identify slow-moving and dated products that are deemed unsalable at a particular location. These products are returned to the supplier and replaced with more successful products. The sales representatives prepare a hard-copy purchase requisition and meet with…arrow_forward
- Which of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?a. Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record.b. Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory.c. Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records.d. Require a manager’s signature for the removal of any inventory item with a value of morethan $50.arrow_forwardPlease consider the scenario below and be aware of poor internal controls over inventory. The City of Milford Parks and Recreation Department operates three community swimming pools. Each pool has a concession stand that sells candy. Each concession stand is staffed with two workers. To be eligible for volume discounts, the Parks and Recreation Department orders the candy for all three pools. Sandy Wells is responsible for ordering the concession stand goodies. Sandy uses a locked closet down the hall from her office at the Parks and Recreation headquarters to store the candy. She checks the closet periodically, and, when supplies seem low, she orders more. Whenever a concession stand needs to restock inventory, a worker goes to the Parks and Recreation headquarters to get the needed candy. Because Sandy knows all of the concession workers, she usually just hands the worker the key to the candy closet so the worker can get whatever is needed. Sandy has attached a chart to the…arrow_forwardA company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure? Group of answer choices 1.The person in accounts payable should generate the purchase order. 2.The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received. 3.No changes would be made since the person paying the bills is different from the person ordering the inventory. 4.The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.arrow_forward
- Sales orders are written by sales people who have no access to the goods, which are released by warehouse personnel. This is example of: an analytical review establishing a system for storing and counting inventory proper documentation that is monitored properly segregation of dutiesarrow_forwardInventory Procedures Using Computer-Assisted Audit Techniques (CAATs). You are conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution center and in two public warehouses. A perpetual inventory computer database is maintained on a computer disk. The database is updated at the end of each business day. Each record of the perpetual inventory database contains the following data:Item number.Location of item.Description of item.Quantity on hand.Cost per item.Date of last purchase.Date of last sale.Quantity sold during year.You are planning to observe the distributor’s physical count of inventories as of a given date. The client will provide a computer file of the preceding items taken from its database as of the date of the physical count. Your firm has a computer audit plan that will be ideal for analyzing the inventory…arrow_forwardLenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation. In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 11741 and the largest is 34687. The smallest sales invoice number is 45302 and the largest is 65747. In the audit of sales, one of the…arrow_forward
- Lenter Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation. In providing control over shipments, the client has prenumbered “warehouse removal slips” that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 11741 and the largest is 34687. The smallest sales invoice number is 45302 and the largest is 65747. In the audit of sales, one of the…arrow_forwardWhat internal control procedure(s) would provide protection against the following threats? a. Theft of goods by the shipping dock workers, who claim that the inventory shortages reflect errors in the inventory records.b. Posting the sales amount to the wrong customer account because a customer account number was incorrectly keyed into the system .c. Making a credit sale to a customer who is already four months behind in making payments on his account. d. Authorizing a credit memo for a sales return when the goods were never actually returned. e. Writing off a customer’s accounts receivable balance as uncollectible to conceal the theft of subsequent cash payments from that customer. f. Billing customers for the quantity ordered when the quantity shipped was actually less due to back ordering of some items .g. Lost sales because of stockouts of several products for which the computer records indicated there was adequate quantity on hand. h. A sales clerk sold a $7,000 wide-screen TV…arrow_forwardRISK ANALYSIS AND INTERNAL CONTROL The following describes the purchases and cash disbursements procedures for a lawn and garden supply wholesaler that uses a central computer system with distributed terminals in departments. The inventory control clerk visually reviews inventory levels from his computer terminal to identify items that need to be ordered. He then prints and sends a hard copy purchase requisition for the needed items to the purchasing agent. Based on the requisition, the purchasing agent selects a vendor and adds a digital record to the purchase order file from his terminal in the purchasing department. The clerk then prints a hard copy of the purchase order and mails it to the vendor. Finally, the purchasing agent destroys the purchase requisition, which it is no longer needed since the relevant details are on the PO. When the materials arrive at the receiving department a receiving clerk prints a copy of the purchase order from his terminal and reconciles it to the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning