INTERMEDIATE ACCOUNTING RMU 9TH EDITION
9th Edition
ISBN: 9781260998726
Author: SPICELAND
Publisher: MCG
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Textbook Question
Chapter 9, Problem 9.11BYP
Ethics Case 9–11
Overstatement of ending inventory
• LO9–7
Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the fiscal year-end June 30, 2018, ending inventory was originally determined to be $3,265,000. However, on July 17, 2018, John Howard, the company’s controller, discovered an error in the ending inventory count. He determined that the correct ending inventory amount should be $2,600,000.
Danville is a privately owned corporation with significant financing provided by a local bank. The bank requires annual audited financial statements as a condition of the loan. By July 17, the auditors had completed their review of the financial statements which are scheduled to be issued on July 25. They did not discover the inventory error.
John’s first reaction was to communicate his finding to the auditors and to revise the financial statements before they are issued. However, he knows that his and his fellow workers’ profit-sharing plans are based on annual pretax earnings and that if he revises the statements, everyone’s profit-sharing bonus will be significantly reduced.
Required:
1. Why will bonuses be negatively affected? What is the effect on pretax earnings?
2. If the error is not corrected in the current year and is discovered by the auditors during the following year’s audit, how will it be reported in the company’s financial statements?
3. Discuss the ethical dilemma John Howard faces.
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Students have asked these similar questions
Problem 9-15 (Algo) Inventory errors [LO9-7]
You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2021, you discover the
following errors related to the 2019 and 2020 financial statements
a. Inventory at December 31, 2019, was understated by $6,500.
b. Inventory at December 31, 2020, was overstated by $9,500
c. On December 31, 2020, inventory was purchased for $3,500. The company did not record the purchase until the inventory was
paid for early in 2021. 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 2020 financial statements were issued, analyze the effect of the errors on 2020
and 2019 cost of goods sold, net income, and retained earnings. (Ignore income taxes.)
2. Prepare a journal entry to correct the errors.
Complete this question by entering your answers in the tabs below.
P 8-14 Dollar-value LIFO
LO8-8
Kingston Company uses the dollar-value LIFO method of computing inventory. An external price index is used
to convert ending inventory to base year. The company began operations on January 1, 2018, with an inventory
of $150,000. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows:
Year Ended
December 31
2018
2019
2020
2021
Ending Inventory
at Year-End Costs
$200,000
245,700
235,980
228,800
Cost Index
(Relative to Base Year)
1.08
1.17
1.14
1.10
Required:
Calculate inventory amounts at the end of each year.
P6-35B Accounting principles for inventory and applying the lower-of-cost-or-
market rule
Some of L andK Electronics's merchandise is gathering dust. It is now December
31, 2018, and the current replacement cost of the ending merchandise inventory is
$32,000 below the business's cost of the goods, which was $98,000. Before any adjust-
ments at the end of the period, the company's Cost of Goods Sold account has a bal-
ance of $410,000.
Requirements
1. Journalize any required entries.
2. At what amount should the company report merchandise inventory on the balance
sheet?
3. At what amount should the company report cost of goods sold on the income
statement?
Chapter 9 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
Ch. 9 - Explain the (a) lower of cost or net realizable...Ch. 9 - What are the various levels of aggregation to...Ch. 9 - Describe the alternative approaches for recording...Ch. 9 - Explain the gross profit method of estimating...Ch. 9 - The Rider Company uses the gross profit method to...Ch. 9 - Explain the retail inventory method of estimating...Ch. 9 - Both the gross profit method and the retail...Ch. 9 - Define each of the following retail terms: initial...Ch. 9 - Explain how to estimate the average cost of...Ch. 9 - Prob. 9.10Q
Ch. 9 - Explain the LIFO retail inventory method.Ch. 9 - Discuss the treatment of freight-in, net markups,...Ch. 9 - Explain the difference between the retail...Ch. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Explain the accounting treatment of material...Ch. 9 - It is discovered in 2018 that ending inventory in...Ch. 9 - Identify any differences between U.S. GAAP and...Ch. 9 - (Based on Appendix 9) Define purchase commitments....Ch. 9 - (Based on Appendix 9) Explain how purchase...Ch. 9 - Lower of cost or net realizable value LO91 Ross...Ch. 9 - Lower of cost or net realizable value LO91 SLR...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.5BECh. 9 - Gross profit method; solving for unknown LO92...Ch. 9 - Retail inventory method; average cost LO93 Kiddie...Ch. 9 - Retail inventory method; LIFO LO93 Refer to the...Ch. 9 - Conventional retail method LO94 Refer to the...Ch. 9 - Conventional retail method LO94 Roberson...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Dollar-value LIFO retail LO95 This exercise is a...Ch. 9 - Change i n inventory costing methods LO96 In...Ch. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Inventory error LO97 In 2018, Winslow...Ch. 9 - Inventory error LO97 Refer to the situation...Ch. 9 - Lower of cost or net realizable value LO91 Herman...Ch. 9 - Lower of cost or net realizable value LO91 The...Ch. 9 - Lower of cost or net realizable value LO91 Tatum...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Gross profit method LO92 Royal Gorge Company uses...Ch. 9 - Prob. 9.12ECh. 9 - Retail inventory method; average cost LO93 San...Ch. 9 - Prob. 9.14ECh. 9 - Retail inventory method; LIFO LO93 Crosby Company...Ch. 9 - Prob. 9.16ECh. 9 - Conventional retail method; employee discounts ...Ch. 9 - Retail inventory method; solving for unknowns ...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Prob. 9.20ECh. 9 - Dollar-value LIFO retail LO95 Lance-Hefner...Ch. 9 - Prob. 9.22ECh. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Prob. 9.24ECh. 9 - Error correction; inventory error LO97 During...Ch. 9 - Prob. 9.26ECh. 9 - Inventory error LO97 In 2018, the internal...Ch. 9 - Inventory errors LO97 In 2018, the controller of...Ch. 9 - Concepts; terminology LO91 through LO97 Listed...Ch. 9 - Prob. 9.30ECh. 9 - Prob. 9.31ECh. 9 - Lower of cost or net realizable value LO91 Decker...Ch. 9 - Prob. 9.2PCh. 9 - Lower of cost or market LO91 Forester Company has...Ch. 9 - Prob. 9.4PCh. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Retail inventory method; conventional and LIFO ...Ch. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Dollar-value LIFO retail method LO95 [This is a...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Prob. 9.14PCh. 9 - Inventory errors LO97 You have been hired as the...Ch. 9 - Inventory errors LO97 The December 31, 2018,...Ch. 9 - Integrating problem; Chapters 8 and 9; inventory...Ch. 9 - Purchase commitments Appendix In November 2018,...Ch. 9 - Judgment Case 91 Inventoriable costs; lower of...Ch. 9 - Integrating Case 93 FIFO and lower of cost or net...Ch. 9 - Prob. 9.4BYPCh. 9 - Prob. 9.5BYPCh. 9 - Prob. 9.6BYPCh. 9 - Prob. 9.7BYPCh. 9 - Real World Case 98 Various inventory issues;...Ch. 9 - Prob. 9.9BYPCh. 9 - Judgment Case 910 Inventory errors LO97 Some...Ch. 9 - Ethics Case 911 Overstatement of ending inventory ...Ch. 9 - Analysis Case 912 Purchase commitments Appendix...Ch. 9 - Continuing Cases Target Case LO93, LO94, LO95...Ch. 9 - Prob. 1CCIFRS
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