EP HORNGREN'S FINAN.+MGRL.ACCT.-ACCESS
7th Edition
ISBN: 9780136516309
Author: MILLER-NOBLES
Publisher: PEARSON CO
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PROBLEM:
Sharp Company received P 80,000 of inventory items on the last day of its fiscal year, May 31, 2022. The company employees a periodic inventory system. During your audit, you discovered the following:
Items Alpha were included in inventory at May 31, 2022, but the purchase was not recorded until June 3, 2022, P 100,000.
Items Bravo were excluded from the May 31, 2022 inventory, but the purchase was recorded on May 31, 2022, P 60,000.
Items Charlie were excluded from the May 31, 2022 inventory, the purchase was not recorded until June 3, 2022, P 50,000.
QUESTION:
What is the net effect on net income of the errors?
For all exercises, assume the perpetual inventory system is used unless stated otherwise.
Correcting an inventory error—two years
Nature Foods Grocery.1 reported the following comparative income statements for the year ended June 30, 2019 and 2018:
During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.
Requirements
Prepare corrected income statements for the two years.
State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.
Waterlily Carpets' books show the following data.
(Click the icon to view the income statements.)
In early 2026, auditors found that the ending merchandise inventory for 2023 was understated by $7,000 and that the ending merchandise inventory for 2025 was overstated by $8,000. The ending merchandise inventory at December 31, 2024, was correct
Read the requirements.
Requirement 1. Prepare corrected income statements for the three years.
Waterlily Carpets
Income Statement
For the Years Ended December 31, 2025, 2024, and 2023
2024
Net Sales Revenue
Cost of Goods Sold
Beginning Merchandise Inventory
Plus: Net Cost of Inventory Purchased
Cost of Goods Available for Sale
Less Ending Merchandise Inventory
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Income
2025
Ending Merchandise
Inventory Overstated
by $8,000
Correct
2023
Ending Merchandise
Inventory Understated
by $7,000
Wor
Data table
Net Sales Revenue
Cost of Goods Sold:
Beginning Merchandise Inventory
Plus: Net Cost of…
Chapter 6 Solutions
EP HORNGREN'S FINAN.+MGRL.ACCT.-ACCESS
Ch. 6 - Which principle or concept states that businesses...Ch. 6 - Which inventory costing method assigns to ending...Ch. 6 - Assume Nile.com began April with 14 units of...Ch. 6 - Suppose Nile.com used the weighted-average...Ch. 6 - Which inventory costing method results in the...Ch. 6 - Prob. 6QCCh. 6 - At December 31, 2016, Stevenson Company overstated...Ch. 6 - Suppose Maestros had cost of goods sold during the...Ch. 6 - Suppose Nile.com used the LIFO inventory costing...Ch. 6 - Prob. 1RQ
Ch. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - What is the goal of conservatism?Ch. 6 - Prob. 5RQCh. 6 - Under a perpetual inventory system, what are the...Ch. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - What does the lower-of-cost-or-market (LCM) rule...Ch. 6 - What account is debited when recording the...Ch. 6 - What is the effect on cost of goods sold, gross...Ch. 6 - When does an inventory error cancel out, and why?Ch. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15ARQCh. 6 - Prob. 16ARQCh. 6 - Determining inventory accounting principles Ward...Ch. 6 - Prob. 6.2SECh. 6 - Prob. 6.3SECh. 6 - Use the following information to answer Short...Ch. 6 - Use the following information to answer Short...Ch. 6 - Use the following information to answer Short...Ch. 6 - Comparing Cost of Goods Sold under FIFO, UFO, and...Ch. 6 - Prob. 6.8SECh. 6 - Prob. 6.9SECh. 6 - Prob. 6.10SECh. 6 - Prob. 6.11SECh. 6 - Prob. 6.12SECh. 6 - Prob. 6.13SECh. 6 - Using accounting vocabulary Match the accounting...Ch. 6 - Prob. 6.15ECh. 6 - Prob. 6.16ECh. 6 - Use the following information to answer Exercises...Ch. 6 - Prob. 6.19ECh. 6 - Prob. 6.20ECh. 6 - Prob. 6.21ECh. 6 - Prob. 6.22ECh. 6 - Prob. 6.23ECh. 6 - Prob. 6.24ECh. 6 - Prob. 6.25ECh. 6 - Prob. 6.26ECh. 6 - Prob. 6.27ECh. 6 - Prob. 6.28APCh. 6 - Prob. 6.29APCh. 6 - Prob. 6.30APCh. 6 - Prob. 6.31APCh. 6 - Prob. 6.32APCh. 6 - Prob. 6.33BPCh. 6 - Prob. 6.34BPCh. 6 - Prob. 6.35BPCh. 6 - Prob. 6.36BPCh. 6 - Prob. 6.37BPCh. 6 - Prob. 6.38CPCh. 6 - Prob. 6.39PSCh. 6 - Prob. 6.1COPCh. 6 - Prob. 6.1CTDC
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Similar questions
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- Errors As controller of Lerner Company, which uses a periodic inventory system, you discover the following errors in the current year: 1. Merchandise with a cost of 17,500 was properly included in the final inventory, but the purchase was not recorded until the following year. 2. Merchandise purchases are in transit under terms of FOB shipping point. They have been excluded from the inventory, but the purchase was recorded in the current year on the receipt of the invoice of 4,300. 3. Goods out on consignment have been excluded from inventory. 4. Merchandise purchases under terms FOB shipping point have been omitted from the purchases account and the ending inventory. The purchases were recorded in the following year. 5. Goods held on consignment from Talbert Supply Co. were included in the inventory. Required: For each error, indicate the effect on the ending inventory and the net income for the current year and on the net income for the following year.arrow_forwardBorys Companys periodic inventory at December 31, 2019, is understated by 10,000, but purchases are correct. Johnson correctly values its 2020 ending inventory. What is the effect of this error on Boryss 2019 and 2020 financial statements?arrow_forwardUnder the periodic inventory system, what account is debited when an estimate is made for the cost of merchandise inventory sold this year, but expected to be returned next year? (a) Estimated Returns Inventory (b) Sales Returns and Allowances (c) Merchandise Inventory (d) Customer Refunds Payablearrow_forward
- Inventory Valuation You are engaged in an audit of Roche Mfg. Company for the year ended December 31, 2019. To reduce the workload at year-end, Roche took its annual physical inventory under your observation on November 30, 2019. Roches inventory account, which includes raw materials and work in process, is on a perpetual basis, and it uses the first-in, first-out method of pricing. It has no finished goods inventory. The companys physical inventory revealed that the book inventory of 60,570 was understated by 3,000. To avoid distorting the interim financial statements, Roche decided not to adjust the book inventory until year-end except for obsolete inventory items. Your audit revealed this information about the November 30 inventory: Pricing tests showed that the physical inventory was overpriced by 2,200. Footing and extension errors resulted in a 150 understatement of the physical inventory. Direct labor included in the physical inventory amounted to 10,000. Overhead was included at the rate of 200% of direct labor. You determined that the amount of direct labor was correct and the overhead rate was proper. The physical inventory included obsolete materials recorded at 250. During December, these materials were removed from the inventory account by a charge to cost of sales. Your audit also disclosed the following information about the December 31, 2019, inventory. Total debits to certain accounts during December are: The cost of sales of 68,600 included direct labor of 13,800. Normal scrap loss on established product lines is negligible. However, a special order started and completed during December had excessive scrap loss of 800 which was charged to Manufacturing Overhead Expense. Required: 1. Compute the correct amount of the physical inventory at November 30, 2019. 2. Without prejudice to your solution to Requirement 1, assume that the correct amount of the inventory at November 30, 2019, was 57,700. Compute the amount of the inventory at December 31,2019.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_forwardI What is the amount of gross profit for the eleven months 2 What is the amount of sales for the month of June? a What is the cost of goods sold for the month of June ? at an interim date, May 31, 2020, instead of at year end. ended June 30, 2020, the CPA observed the physical inventory The following information was obtained from the general „Problem 13-14 (AICPA Adapted) ended May 31, 2020? year In conducting an audit of Ultimate Company for the a 1,680,000 b. 1,725,000 C. 1,735,000 d. 1,670,000 ledger. Inventory, July 1, 2019 Physical inventory, May 31, 2020 Sales for 11 months ended May 31, 2020 Sales for year ended June 30, 2020 Purchases for 11 months ended May 31, 2020 before audit adjustments Purchases for year ended June 30, 2020 before audit adjustments 875,000 950,000 8,400,000 9,600,000 в. 1,100,000 b. 1,200,000 c. 1,300,000 d. 1,400,000 er 14 6,750,000 8,000,000 1. Shipments received in May and included in the physical inventory but recorded as June purchases a. 960,000 b.…arrow_forward
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