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Inventory errors
• LO9–7
In 2018, the controller of Sytec Corporation discovered that $42,000 of inventory purchases were incorrectly charged to advertising expense in 2017. In addition, the 2017 year-end inventory count failed to include $30,000 of company merchandise held on consignment by Erin Brothers. Sytec uses a periodic inventory system. Other than the omission of the merchandise on consignment, the year-end inventory count was correct. The amounts of the errors are deemed to be material.
Required:
1. Determine the effect of the errors on
2. Prepare a
3. What other step(s) would be taken in connection with the correction of the errors?
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Chapter 9 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- 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_forwardInventory Errors McLelland Inc. reported net income of $175,000 for 2019 and $210,000 for 2020. Early in 2020, McLelland discovers that the December 31, 2019 ending inventory was overstated by $20,000. For simplicity, ignore taxes. Required: 1. What is the correct net income for 2019? For 2020? 2. Assuming the error was not corrected, what is the effect on the balance sheet at December 31, 2019? At December 31, 2020?arrow_forwardProblem 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.arrow_forward
- PROBLEM 6: XXX Company is preparing its 2021 financial statements. Prior to any adjustments, inventory is valued at P1,605,000. The following information has been found relating to certaininventory transactions from your cut-off test: A. Goods valued at P110,000 are on consignment with a customer. These goods werenot included in the ending inventory figure. B.Goods costing P87,000 were received from a vendor on January 5, 2022. The relatedinvoice was received and recorded on January 12, 2022. The goods were shippedonDecember 31, 2021, terms FOB shipping point. C. Goods costing P85,000, sold for P102,000, were shipped on December 31, 2021, andwere delivered to the customer on January 2, 2022. The terms of the invoice wereFOBshipping point. The goods were included in the ending inventory for 2021 and thesalewas recorded in 2022. D. A P35,000 shipment of goods to a customer on December 31, terms FOB destinationwas not included in the year-end inventory. The goods cost P26,000…arrow_forwardProblem 16-4 (PHILCPA Adapted) Malampaya Company showed income before income tax of P6,500,000 on December 31, 2021. The year-end verification of the transactions revealed the following errors: * P1,000,000 worth of merchandise was purchased in 2021 and included in the ending inventory. However, the purchase was recorded only in 2022. A merchandise shipment valued at P1,500,000 was properly recorded as purchase at year-end. Since the merchandise was still at the port area, it was inadvertently omitted from the inventory on December 31, 2021. *Advertising for December 2021, amounting to P500,000, was recorded when payment was made in January 2022. * Rent of P300,000 on an equipment applicable for six months was received on November 1, 2021. The entire amount was reported as income upon receipt. Insurance premium covering the period from July 1, 2021 to July 1, 2022 amounting to P200,000 was paid and recorded as expense on July 31, 2021. The entity did not make any adjustment at the end…arrow_forwardLime Supplies had a miscount of inventory at $22,000 for the year end May 31, 2022. The correct amount should have been $25,000. If this error was never corrected, and assuming the inventory count was correct for 2023, how much would this error impact the cost of goods sold in 2022? Select one: a. Not impacted at all. b. $3,000 overstated c. $ 47,000 understated d. $3,000 understatedarrow_forward
- Errors in Inventory Count Bow Corp. accidentally overstated its 2015 ending inventory by $750. Assume that ending 2016 inventory is accurately counted. The error in 2015 will have what effect on Bow Corp.? Oa. 2015 net income is understated by $750 Ob. 2015 net income is overstated by $750. Oc, 2016 net income is understated by $750. Od. Both b and c are correct.arrow_forwardProblem 13-12 (IAA) In December 2021, Unanimous Company had a significant portion of inventory stolen. The entity determined the cost of inventory not stolen to be P100,000. 2021 2020 Purchases Purchase returns and allowances Sales Sales returns and allowances Beginning inventory 5,200,000 240,000 7,880,000 80,000 1,200,000 5,000,000 200,000 8,200,000 200,000 2,000,000 What amount should be reported as cost of the stolen inventory? a. 700,000 b. 600,000 c. 644,000 d. 144,000arrow_forwardReview Exercises 7-41 M7-8 Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valucd using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? Under the dollar-value LIFO inventory method, Kern's inventory method, Kern's inventory on December 31, 2016, would be: LO 7.5 a. $650,000 b. $655,000 c. $660,000 d. $720,000 a. Prices decreased. When the double-extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number. How would the following be used in the calculation of this index number? M7-10 b. Prices remained unchanged. c. Prices increased. d. Price trend cannot be determined from information given. LO 7.7 On December 31, 2015, Kern Company adopted the dollar-value LIFO inventory method. All of Kern's inventories constitute a single pool. The inventory on Dccember 31,…arrow_forward
- M7-17 Calculating Effect of Inventory Errors For each of the following scenarios, determine the effect of the error on income in the current period and in the subsequent period. To answer these questions, rely on the inventory equation: Beginning inventory + Purchases - Cost of goods sold = Ending inventory a. Porter Company received a shipment of merchandise costing $32,000 near the end of the fiscal year. The shipment was mistakenly recorded at a cost of $23,000. b. Chiu, Inc., purchased merchandise costing $16,000. When the shipment was received, it was determined that the merchandise was damaged in shipment. The goods were returned to the supplier, but the accounting department was not notified and the invoice was paid. c. After taking a physical count of its inventory, Murray Corporation determined that it had “shrink” of $12,500, and the books were adjusted accordingly. However, inventory costing $5,000 was never countedarrow_forwardS ents S ors ce ses 25 021- Question 4 of 34 Speaker Company has determined its 2014 and 2015 net income figures to be P1,150,000 and P1,100,000, respectively. In a first time audit of the company's financial statements, you determine the following errors: a) Merchandise inventory was incorrectly determined: P50,000 overstatement for 2014 and P150,000 overstatement for 2012. b) Revenue received in advance in 2014 of P250,000 was credited to a revenue account when received. Of the total, P50,000 was earned in 2014, P120,000 was earned in 2015 and the remainder will be earned in 2013. P120,000 gain on sale of plant assets in 2015 was erroneously credited to Accumulated Profits and Losses. What is the corrected net income for the year 2015? Select the correct response: Php Php 900,000 1,120,000 Php 1,190,000 Php 1,240,000arrow_forwardChapter 8 Perform (ASAC LO 5 and BSAC LO 2) Kingbird Company began operations late in 2024 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2024 and no markdowns during 2024, the ending inventory for 2024 was $13,708 under both the conventional retail method and the LIFO retail method. At the end of 2025, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2025. The following data are available for computations. Cost Inventory, January 1, 2025 Sales revenue Net markups mu Net markdowns mo Purchases Freight-in Estimated theft (b) The LIFO retail method. Ending inventory at cost Ending inventory at retail Cost $ $13,708 $ 63,900 5,888 Retail Compute the cost of the 2025 ending inventory under both: (a) The conventional retail method. $20,200 77,000 mu 9,900 mD 1,800 ex Beg Ending inventory using the conventional retail method $ 87,500 2,200 27336 40800…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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