FINANCIAL ACCOUNTING: TOOLS FOR BUSINES
9th Edition
ISBN: 9781119595649
Author: Kimmel
Publisher: WILEY
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Chapter 6, Problem 6.9EYCT
To determine
The balance sheet: This is a financial statement that shows the assets, liabilities, and
To Write: A letter to the president of Company G regarding the nature of inventory error and its effect on the financial statements.
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You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2016, you discover the following errors related to the 2014 and 2015 financial statements: a. Inventory at 12/31/14 was understated by $6,000. b. Inventory at 12/31/15 was overstated by $9,000. c. On 12/31/15, inventory was purchased for $3,000. The company did not record the purchase until the inventory was paid for early in 2016. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2015 financial statements were issued, analyze the effect of the errors on 2015 and 2014 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors. 3. What other step(s) would be taken in connection with the errors?
You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2016, you discover the following errors related to the 2014 and 2015 financial statements: a. Inventory at 12/31/2014 was understated by $6,000. b. Inventory at 12/31/2015 was overstated by $9,000. c. On 12/31/2015, inventory was purchased for $3,000. The company did not record the purchase until the inventory was paid for early in 2016. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2015 financial statements were issued, analyze the effect of the errors on 2015 and 2014 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors. 3. What other step(s) would be taken in connection with the error?
Late in 2017, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Becker Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Becker Department Stores contain the following amounts on November 30, 2020, the end of the fiscal year.
Cost
Retail
Beginning inventory
$ 68,000
$100,000
Purchases
255,000
400,000
Net markups
50,000
Net markdowns
110,000
Sales revenue
320,000
According to the November 30, 2020, physical inventory, the actual inventory at retail is $115,000.
Instructions
a. Describe the circumstances under which the…
Chapter 6 Solutions
FINANCIAL ACCOUNTING: TOOLS FOR BUSINES
Ch. 6 - The key to successful business operations is...Ch. 6 - Prob. 2QCh. 6 - What is just-in-time inventory management? What...Ch. 6 - Prob. 4QCh. 6 - Prob. 5QCh. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - What is the major advantage and major disadvantage...Ch. 6 - The selection of an inventory cost flow method is...
Ch. 6 - Which assumed inventory cost flow method: (a)...Ch. 6 - Prob. 12QCh. 6 - Prob. 13QCh. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Prob. 17QCh. 6 - Prob. 18QCh. 6 - Why is it inappropriate for a company to include...Ch. 6 - Prob. 20QCh. 6 - Prob. 21QCh. 6 - Prob. 22QCh. 6 - When perpetual inventory records are kept, the...Ch. 6 - How does the average-cost method of inventory...Ch. 6 - Prob. 6.1BECh. 6 - Prob. 6.3BECh. 6 - Prob. 6.4BECh. 6 - Prob. 6.6BECh. 6 - Prob. 6.7BECh. 6 - Prob. 6.8BECh. 6 - Prob. 6.9BECh. 6 - Prob. 6.10BECh. 6 - Prob. 6.11BECh. 6 - Prob. 6.12BECh. 6 - Prob. 6.1DIECh. 6 - Prob. 6.2DIECh. 6 - Prob. 6.3aDIECh. 6 - Prob. 6.1ECh. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Prob. 6.4ECh. 6 - Prob. 6.5ECh. 6 - Prob. 6.6ECh. 6 - Prob. 6.7ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Inventory data for Jeters Company are presented in...Ch. 6 - Prob. 6.15ECh. 6 - Prob. 6.2APCh. 6 - Prob. 6.3APCh. 6 - Prob. 6.6APCh. 6 - Prob. 6.7APCh. 6 - Prob. 6.9APCh. 6 - Prob. 6.3EYCTCh. 6 - The July 15, 2010, edition of CFO.com contains an...Ch. 6 - Prob. 6.8EYCTCh. 6 - Prob. 6.9EYCTCh. 6 - Prob. 6.10EYCTCh. 6 - Prob. 6.11EYCTCh. 6 - Prob. 6.1IECh. 6 - Prob. 6.2IECh. 6 - Prob. 6.3IE
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- Your client, Daves Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2019, the CFO decided that keeping track of inventory using a combination of QuickBooks and spreadsheets was not an efficient way to manage the stores inventories. So Daves purchased an inventory management system for 9,000 that allowed the entity to keep track of inventory, as well as automate ordering and purchasing, without replacing QuickBooks for its accounting function. The CFO would like to know whether the cost of the inventory management program can be expensed in the year of purchase. Write a letter to the CFO, Cassandra Martin, that addresses the tax treatment of purchased software. Cassandras mailing address is 867 Broadway, New York, NY 10003.arrow_forwardDuring 2014, Vanguard, Ic., changed to the LIFO method of accounting for inventory. Suppose that during 2013, Vanguard changed back to the FIFO method and the following year Vanguard switches back to LIFO again. Requirements 1. What would you think of a company's ethics if it changed accounting methods every year? 2. What accounting principle would changing methods every year violate? 3. Who can be harmed when a company changes its accounting methods too often? How?arrow_forwardMargie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to "make this happen." Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated. Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make an adjusting entry for shrinkage this period. He assures her that he will get "caught up" on shrinkage in the next period, after the pressure is off to reach this period's earning goal. Margies boss asks her to do this as a personal favor for him. What should Margie…arrow_forward
- 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.)arrow_forwardFarley Bains, an auditor with Nolls CPAs, is performing a review of Ryder Company’s Inventory account. Ryder Company did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $740,000. However, the following information was not considered when determining that amount. Included in the company’s count were goods with a cost of $228,000 that the company is holding on consignment. The goods belong to Nader Corporation. The physical count did not include goods purchased by Ryder Company with a cost of $40,000 that were shipped FOB shipping point on December 28 and did not arrive at Ryder Company’s warehouse until January 3. Included in the Inventory account was $17,000 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year. The company received an order on December 29 that was boxed and was sitting on the…arrow_forwardYou have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2018, you discover the following errors related to the 2016 and 2017 financial statements: Inventory at 12/31/2016 was understated by $8,000. Inventory at 12/31/2017 was overstated by $13,000. On 12/31/2017, inventory was purchased for $5,000. The company did not record the purchase until the inventory was paid for early in 2018. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required:1. Assuming that the errors were discovered after the 2017 financial statements were issued, analyze the effect of the errors on 2017 and 2016 cost of goods sold, net income, and retained earnings. (Ignore income taxes.)2. Prepare a journal entry to correct the errors.arrow_forward
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