Financial Accounting
3rd Edition
ISBN: 9780078025549
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 6, Problem 23RQ
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To explain: The effect of the error that will have on the given reported amount.
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Candle Co. performs an inventory court at year - end. The company records a ending balance of $56,000 for inventory on its balance sheet. During the following year, the accountant discovers that the ending inventory was miscounted, causing ending inventory to be overstated by $2, 500. a. What is the effect of the misstatement on the income statement? b. Besides ending inventory, what was the effect of the error on the balance sheet?
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 the adjusting entry for shrinkage this period. He assures her that they will get “caught up” on shrinkage in the next period, after the pressure is off to reach this period’s earnings goal. Margie’s boss asks her to do this as a personal favor to him.
Should the inventory shrinkage be ignored?
How will the income statement and balance sheet be effected if the adjustment is not made?
What should Margie do in this situation? Why?
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 are correct. Indicate the effect of the preceding errors on the income statement and the balance sheet of the current and succeeding years.
Chapter 6 Solutions
Financial Accounting
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - What is the difference among raw materials...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - What is a multiple-step income statement? What...Ch. 6 - Cheryl believes that companies report cost of...Ch. 6 - What are the three primary cost flow assumptions?...Ch. 6 - 9.Which cost flow assumption generally results in...Ch. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - 12.Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Explain how freight charges, purchase returns, and...Ch. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - How is gross profit calculated? What is the gross...Ch. 6 - 21.Explain how the sale of inventory on account is...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 6.1BECh. 6 - Prob. 6.2BECh. 6 - Calculate cost of goods sold (LO62) At the...Ch. 6 - Prob. 6.4BECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.8BECh. 6 - Identify financial statement effects of FIFO and...Ch. 6 - Prob. 6.10BECh. 6 - Prob. 6.11BECh. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Prob. 6.22BECh. 6 - Calculate cost of goods sold (LO62) Russell Retail...Ch. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Calculate inventory amounts when costs are rising...Ch. 6 - Calculate inventory amounts when costs are...Ch. 6 - Record Inventory transactions using o perpetual...Ch. 6 - Record inventory purchase and purchase return...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Record transactions using a perpetual system...Ch. 6 - Record transactions using a perpetual system...Ch. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Calculate cost of goods sold, the inventory...Ch. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18ECh. 6 - Record inventory purchases and sales using a...Ch. 6 - Prob. 6.20ECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2APCh. 6 - Prob. 6.3APCh. 6 - Prob. 6.4APCh. 6 - Prob. 6.5APCh. 6 - Prob. 6.6APCh. 6 - Prob. 6.7APCh. 6 - Prob. 6.8APCh. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10APCh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2BPCh. 6 - Prob. 6.3BPCh. 6 - Prob. 6.4BPCh. 6 - Prob. 6.5BPCh. 6 - Prob. 6.6BPCh. 6 - Prob. 6.7BPCh. 6 - Use the inventory turnover retio end gross profit...Ch. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10BPCh. 6 - Prob. 6.1APCPCh. 6 - Prob. 6.2APFACh. 6 - Prob. 6.3APFACh. 6 - Prob. 6.4APCACh. 6 - Prob. 6.5APECh. 6 - Prob. 6.6APIRCh. 6 - Written Communication You have just been hired as...Ch. 6 - Prob. 6.8APEM
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- Indicate 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_forwardA company forgets to record a purchase on credit in the purchases account, but ending inventory is correct. The effect of this mistake in the current year is:arrow_forwardA list of errors is shown below: Show the effects of the errors on the indicated balance sheet and income statement items. Errors Cost ofGoods Sold RetainedEarnings Year-EndWorkingCapital Ending inventory is overstated Beginning inventory is overstated Ending inventory is understated Beginning inventory is understated Purchases is overstated (recorded twice) Purchases is understated (not recorded)arrow_forward
- A purchase on credit is recorded twice and not corrected during the year-end physical inventory. Which of the following statements correctly describes the impact of this error? The succeeding year income on the income statement is incorrect because beginning inventory is understated. The succeeding year purchases are understated when the prior year purchases are corrected. The current year income on the income statement is correct because purchases are overstated and ending inventory is overstated. The current year balance sheet ending inventory and accounts payable are understated.arrow_forwardKari Downs, an auditor with Wheeler CPAS, is performing a review of Sheridan Company's inventory account. Sheridan 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 $731,000. However, the following information was not considered when determining that amount. (a1) Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number, e.g. -15,000, or parenthesis e.g. (15,000). Enter O if there is no effect.) 1. 2. 3. 4. 5. 6. Ending inventory-as reported Included in the company's count were goods with a cost of $241,000 that the company is holding on consignment. The goods belong to Kroeger Corporation. The physical count did not include goods purchased by Sheridan with a cost of $38,000 that were shipped FOB destination on December 28 and did not arrive at Sheridan warehouse until January 3.…arrow_forwardKari Downs, an auditor with Wheeler CPAs, is performing a review of Sheridan Company's inventory account. Sheridan 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 $731,000. However, the following information was not considered when determining that amount. (a1) Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number, e.g. -15,000, or parenthesis e.g. (15,000). Enter 0 if there is no effect.) 1. Ending inventory-as reported Included in the company's count were goods with a cost of $250,000 that the company is holding on consignment. The goods belong to Kroeger Corporation. 2. The physical count did not include goods purchased by Sheridan with a cost of $31,000 that were shipped FOB destination on December 28 and did not arrive at Sheridan warehouse until January 3. 3. Included in the…arrow_forward
- Kari Downs, an auditor with Wheeler CPAS, is performing a review of Swifty Company's inventory account. Swifty 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 $747,000. However, the following information was not considered when determining that amount. (a1) Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number, e.g. -15,000, or parenthesis e.g. (15,000). Enter O if there is no effect.) 1. 2. 3. 4. 5. 6. Ending inventory-as reported Included in the company's count were goods with a cost of $244,000 that the company is holding on consignment. The goods belong to Kroeger Corporation. The physical count did not include goods purchased by Swifty with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Swifty warehouse until January 3. Included in the…arrow_forwardThe records of Thomas Company as of December 31, 2020, show the following: The accountant of Thomas Company discovers in the first week of January 2021 that the following errors were made by his staff. a. Goods costing $4.500 were in transit (FOB shipping point) and were not included in the ending inventory. The invoice had been received and the purchase recorded. b. Damaged goods (cost $4,100) that were being held for return to the supplier were included in inventory. The goods had been recorded as a purchase and the entry for the return of these goods had also been made. c. Inventory items costing $3,900 were incorrectly excluded from the final inventory. These goods had not been recorded as a purchase and had not been paid for by the company. d. Goods that were shipped FOB destination had not yet arrived and were not included in inventory. However, the invoice had arrived on December 30, 2020, and the purchase for $2,700 was recorded. e. Goods that cost $2.400 were segregated and…arrow_forwardFarley Bains, an auditor with Nolls CPAs, is performing ar ga review of Ryder Company's Inventory account. Ryder 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. Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with o negative sign preceding the number, e.g.-15,000, or parenthesis eg. (15,000). Enter 0 if there is no effect.) 1. Your answer is partially correct. 2 3 Ending inventory-as reported 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 with a cost of $40,000 that were shipped FOB shipping point on December 28 and did not arrive at Ryder's warehouse until January…arrow_forward
- 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: Inventory at December 31, 2019, was understated by $6,100. Inventory at December 31, 2020, was overstated by $9,100. On December 31, 2020, inventory was purchased for $3,100. 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.arrow_forwardFarley Bains, an auditor with Nolls CPAs, is performing a review of Waterway Company’s Inventory account. Waterway 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 $695,600. However, the following information was not considered when determining that amount.Prepare a schedule to determine the correct inventory amount. (Show amounts that reduce inventory with a negative sign or parenthesis e.g. -45 or parentheses e.g. (45).) Ending inventory-as reported $Enter a dollar amount 1. Included in the company’s count were goods with a cost of $211,700 that the company is holding on consignment. The goods belong to Nader Corporation. Enter a dollar amount 2. The physical count did not include goods purchased by Waterway with a cost of $40,640 that were shipped FOB shipping point on December 28 and did not arrive at Waterway’s warehouse…arrow_forwardB) The following errors occurred related to a periodic inventory system: In 2022, the new intern did not count a shelf of inventory worth $2,000. - In 2023, at December 29 we sold inventory at a sales price of $10,000 on account that shipped FOB destination point on December 31, and arrived to the customer on Jan 2nd. We recorded the sale when it shipped. The intern counted inventory before the shipment and thus the product was included in the year-end inventory count. Year Net Income Assets Liabilities Owners' Equity 2022 2023 2024 Please use target corporation annual report (2019 10-K)arrow_forward
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Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License