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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Allen Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from Allen’s accounting records are as follows:

Chapter 7, Problem 17P, Allen Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from , example  1

Accounts payable at December 31, 2019:

Chapter 7, Problem 17P, Allen Company is a wholesale distributor of automotive replacement parts. Initial amounts taken from , example  2

Additional information is as follows:

  1. 1. Parts held on consignment from Charlie to Allen, the consignee, amounting to $155,000 were included in the physical count of goods in Allen’s warehouse on December 31, 2019, and in accounts payable at December 31, 2019.
  2. 2. $22,000 of parts, which were purchased from Full and paid for in December 2019, were sold in the last week of 2019 and appropriately recorded as sales of $28,000. The parts were included in the physical count of goods in Allen’s warehouse on December 31, 2019, because the parts were on the loading dock waiting to be picked up by customers.
  3. 3. Parts in transit to customers on December 31, 2019, shipped FOB shipping point on December 28, 2019, amounted to $34,000. The customers received the parts on January 7, 2020. Sales of $40,000 to the customers for the parts were recorded by Allen on January 3, 2020.
  4. 4. Retailers were holding $210,000 at cost ($250,000 at retail) of goods on consignment from Allen, the consignor, at their stores on December 31, 2019.
  5. 5. Goods were in transit from Greg to Allen on December 31, 2019. The cost of the goods was $25,000, and they were shipped FOB shipping point on December 29, 2019.
  6. 6. A quarterly freight bill in the amount of $2,000 specifically relating to merchandise purchases in December 2019, all of which was still in the inventory at December 31, 2019, was received on January 4, 2020. The freight bill was not included in either the inventory or in accounts payable at December 31, 2019.
  7. 7. All of the purchases from Baker occurred during the last 7 days of the year. These items have been recorded in accounts payable and accounted for in the physical inventory at cost before discount. Allen’s policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and record accounts payable, net of cash discounts.

Required:

Prepare a schedule of adjustments to the initial amounts of inventory, accounts payable, and sales. Show the effect, if any, of each of the transactions separately and indicate if the transactions would have no effect on the amount.

To determine

Draw the schedule of adjustments.

Explanation

Inventory:

Inventory refers to the raw materials, work-in progress, and the finished goods products that are held by the business to sell or make it ready for sale, in the future date. There are three types of inventories, a manufacturing business reports on its balance sheet. They are as follows:

  • v Raw material inventory.
  • v Work in process inventory.
  • v Finished goods inventory.

The schedule of adjustments is as follows:

ParticularsInventoryAccounts payableSales
Initial amount$ 1,250,000 $ 1,000,000 $ 9,000,000
Adjustments   
Transaction 1((&#x...

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