ACCOUNTING,CHAP.1-13
26th Edition
ISBN: 9781305088412
Author: WARREN
Publisher: CENGAGE L
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Chapter 7, Problem 7.18EX
(a)
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 indicate: the effect of misstatement on FM shop in their balance sheet.
(b)
To determine
To indicate: the effect of misstatement on FM shop in their income statement.
(c)
To determine
To indicate: the effect on FM shop in their income statement on the next year if the mistake is uncorrected.
(d)
To determine
To indicate: the effect on FM shop in their balance sheet on the next year if the mistake is uncorrected.
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Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 20Y1, Fonda incorrectly counted its inventory as $268,030 instead of the correct amount of $257,310.
Enter all amounts as positive numbers.
a. State the effects of the error on the December 31, 20Y1, balance sheet of Fonda Motorcycle Shop.
Balance Sheet Items
Overstated/Understated
Amount
Inventory
Overstated
$
Current Assets
Overstated
$
Total Assets
Overstated
$
Stockholders’ Equity
Overstated
$
b. State the effects of the error on the income statement of Fonda Motorcycle Shop for the year ended December 31, 20Y1.
Income Statement Items
Overstated/Understated
Amount
Cost of Goods Sold
Understated
$
Gross Profit
Overstated
$
Net Income
Overstated
$
c. If uncorrected, what would be the effects of the error on the 20Y2 income statement?
Income Statement Items
Understated/Overstated
Amount
Cost of…
The 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.
(Error Corrections) You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2017. You discover the following situations.1. Depreciation of $3,200 for 2017 on delivery vehicles was not recorded.2. The physical inventory count on December 31, 2016, improperly excluded merchandise costing $19,000 that had been temporarily stored in a public warehouse. Zarle uses a periodic inventory system.3. A collection of $5,600 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018.4. In 2017, the company sold for $3,700 fully depreciated equipment that originally cost $25,000. The company credited the proceeds from the sale to the Equipment account.5. During November 2017, a competitor company filed a patent-infringement suit against Zarle claiming damages of $220,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the…
Chapter 7 Solutions
ACCOUNTING,CHAP.1-13
Ch. 7 - Prob. 1DQCh. 7 - Why is it important to take a physical inventory...Ch. 7 - Do the terms FIFO, LIFO, and weighted average...Ch. 7 - If merchandise inventory is being valued at cost...Ch. 7 - Which of the three methods of inventory...Ch. 7 - If inventory is being valued at cost and the price...Ch. 7 - Using the following data, how should the...Ch. 7 - The inventory at the end of the year was...Ch. 7 - Hutch Co. sold merchandise to Bibbins Company on...Ch. 7 - A manufacturer shipped merchandise to a retailer...
Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Cost flow methods The following three identical...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Perpetual inventory using weighted average...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Periodic inventory using FIFO, LIFO, and weighted...Ch. 7 - Lower-of-cost-or-market method On the basis of the...Ch. 7 - Prob. 7.6BPECh. 7 - Prob. 7.7APECh. 7 - Prob. 7.7BPECh. 7 - Prob. 7.8APECh. 7 - Prob. 7.8BPECh. 7 - Control of inventories Triple Creek Hardware Store...Ch. 7 - Control of inventories Hardcase Luggage Shop is a...Ch. 7 - Perpetual inventory using FIFO Beginning...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Beginning...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - FIFO and LIFO costs under perpetual inventory...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Weighted average cost flow method under perpetual...Ch. 7 - Perpetual inventory using FIFO Assume that the...Ch. 7 - Perpetual inventory using LIFO Assume that the...Ch. 7 - Prob. 7.12EXCh. 7 - Periodic inventory by three methods; cost of...Ch. 7 - Comparing inventory methods Assume that a firm...Ch. 7 - Lower-of-cost-or-market inventory On the basis of...Ch. 7 - Merchandise inventory on the balance sheet Based...Ch. 7 - Prob. 7.17EXCh. 7 - Prob. 7.18EXCh. 7 - Error in inventory During 2016, the accountant...Ch. 7 - Inventory turnover The following data (in...Ch. 7 - Inventory turnover and number of days' sales in...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method A business using the retail method...Ch. 7 - Retail method On the basis of the following data,...Ch. 7 - Gross profit method The merchandise inventory was...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - Gross profit method Based on the following data,...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Prob. 7.4APRCh. 7 - Prob. 7.5APRCh. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - FIFO perpetual inventory The beginning inventory...Ch. 7 - LIFO perpetual inventory The beginning inventory...Ch. 7 - Weighted average cost method with perpetual...Ch. 7 - Periodic inventory by three methods The beginning...Ch. 7 - Periodic inventory by three methods Pappas...Ch. 7 - Lower-of-cost-or-market inventory Data on the...Ch. 7 - Retail method; gross profit method Selected data...Ch. 7 - Prob. 7.1CPCh. 7 - LIFO and inventory flows The following is an...Ch. 7 - Costing inventory Golden Eagle Company began...Ch. 7 - Inventory ratios for Dell and HP Dell Inc. and...Ch. 7 - Comparing inventory ratios for two companies...Ch. 7 - Prob. 7.6CP
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- Effects of an Error in Ending Inventory Waymire Company prepared the partial income statements presented below for 2019 and 2018. During 2020, Waymires accountant discovered that ending inventory for 2018 had been understated by $6,500. Required: 1. Prepare corrected income statements for 2019 and 2018. 2. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item (ignore the effect of income taxes). Indicate whether each error is an overstatement (+) or an understatement (-).arrow_forwardEffects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in 2019 appear below. During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly. a. A purchase return of inventory costing $42,000 was recorded twice. b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017. Required: 1. Was ending inventory for 2017 overstated or understated? By how much? 2. Prepare correct income statements for all 3 years. 3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response. 4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?arrow_forwardErrors 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_forward
- Errors A company that uses the periodic inventory system makes the following errors: 1. It omits a purchase on credit from the purchases account and the ending inventory. 2. It omits a purchase on credit from the purchases account, but the ending inventory is correct. 3. It overstates the ending inventory, but purchases arc correct. Required: Indicate the effect of the preceding errors on the income statement and the balance sheet of the current and succeeding years.arrow_forwardIndicate the effect of each of the following errors on the following balance sheet and income statement items for the current and succeeding years: beginning inventory, ending inventory, accounts payable, retained earnings, purchases, cost of goods sold, net income, and earnings per share. a. The ending inventory is overstated. b. Merchandise purchased on account and received was not recorded in the purchases account until the succeeding year although the item was included in inventory of the current year. c. Merchandise purchased on account and shipped FOB shipping point was not recorded in either the purchases account or the ending inventory. d. The ending inventory was understated as a result of the exclusion of goods sent out on consignment.arrow_forwardDuring the taking of its physical inventory on December 31, 2014, Kate's Interiors Company incorrectly counted its inventory as $446,935 instead of the correct amount of $500,565. Indicate the effect of the misstatement on Kate's Interiors's December 31, 2014, balance sheet and income statement for the year ended December 31, 2014. Also record the amount of each overstatement or understatement. Enter all amounts as positive numbers. Cost of merchandise sold Current assets Gross profit Merchandise inventory Net income Owner's equity Total assets $ $ $ $ $ S Sarrow_forward
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