FUNDAMENTAL ACCOUNTING PRINCIPLES
FUNDAMENTAL ACCOUNTING PRINCIPLES
24th Edition
ISBN: 9781264044375
Author: Wild
Publisher: McGraw-Hil
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Chapter 6, Problem 6BPSB
To determine

Concept Introduction:

Inventory- Inventory refers to the work in progress, raw material or the finished goods that are considered as the part of asset of business that are ready or would be ready to be sold.

Cost of goods sold-

Cost of goods sold (COGS) refers to the direct cost which is assigned to the cost of producing the goods sold. It includes cost of direct material ,labour used in the production of goods and services.

Net Income- Net Income refers to the total earning of the company which is computed by undertaking revenues and making adjustment underlying the cost for interest, doing business, taxes, interest, depreciation etc.

Current Assets- Current Assets refer to those which can be converted into cash within one year.

Equity- Equity refers to the stock which depicts the ownership of the investor.

To prepare:

Financial statement showing the necessary adjustments to correct the amounts.

Expert Solution
Check Mark

Answer to Problem 6BPSB

(a)

    COGS
    Year 1
    Year 2
    Year 3
    Reported
    $207,200
    $213,800
    $197,030
    Adjustment
    Year 1 error
    18,000
    (18,000)
    Year 2 error
    (26,000)
    26,000
    Corrected COGS225,200169,800223,030

(b)

    Net Income
    Year 1
    Year 2
    Year 3
    Reported
    175,800
    212,270
    184,910
    Adjustment
    Year 1 error
    (18,000)
    18,000
    Year 2 error
    26,000
    (26,000)
    Corrected Net income157,800256,270158,910

(c)

    Current Asset
    Year 1
    Year 2
    Year 3
    Reported
    276,000
    277,500
    272,950
    Adjustment
    Year 1 error
    (18,000)
    Year 2 error
    26,000
    Corrected Current Asset258,000303,500272,950

(d)

    Equity
    Year 1
    Year 2
    Year 3
    Reported
    314,000
    315,000
    346,000
    Adjustment
    Year 1 error
    (18,000)
    Year 2 error
    26,000
    Corrected Equity296,000341,000346,000

Explanation of Solution

Corrected figures are explained as follows:

  1. Corrected COGS is ascertained by adding the overstated amount in year 1 and subtracting in year 2 and subtracting the understated amount in year 2 and adding in year 3.
  2. Year1-

      Corrected COGS = Reported amount+Year 1 errorCorrected COGS =$207,200+$18,000Corrected COGS =$225,200

    Year2-

      Corrected COGS = Reported amountYear 1 errorYear2errorCorrected COGS =$213,800$18,000$26,000Corrected COGS =$169,800

    Year 3-

       Corrected COGS = Reported amount+Year 2 error Corrected COGS =197,030+26,000Corrected COGS =223,030

  3. Corrected Net Income is ascertained by subtracting the overstated amount in year 1 and adding in year 2 and adding the understated amount in year 2 and subtracting in year3.
  4. Year1-

      Corrected net income= Reported amountYear 1 errorCorrected net income =$175,800$18,000Corrected net income =$157,800

    Year2-

      Corrected Net Income = Reported amount+Year 1 error+Year2errorCorrected Net Income =$212,270+$18,000+$26,000Corrected Net Income =$256,270

    Year 3-

       Corrected Net Income = Reported amountYear 2 error Corrected Net Income =$184,910$26,000Corrected Net Income =158,910

  5. Corrected Current Asset is ascertained by subtracting the overstated amount in year 1 and adding the understated amount in year 2.
  6. Year1-
      Corrected Current Asset= Reported amountYear 1 errorCorrected Current Asset =$276,000$18,000Corrected Current Asset =$258,000

    Year2-
      Corrected Current Asset= Reported amount+Year2errorCorrected Current Asset =277,500+26,000Corrected Current Asset =303,500

  7. Corrected Equity is ascertained by subtracting the overstated amount in year 1 and adding the understated amount in year 2.
  8. Year1-

      Corrected Equity= Reported amountYear 1 errorCorrected Equity =314,00018,000Corrected Equity =296,000

    Year2-

      Corrected Equity= Reported amount+Year2errorCorrected Equity =315,000+26,000Corrected Equity =341,000

Conclusion:

Thus table showing the necessary adjustments to correct the reported amount is prepared.

To determine

Concept Introduction:

Inventory- Inventory refers to the work in progress, raw material or the finished goods that are considered as the part of asset of business that are ready or would be ready to be sold.

Net Income- Net Income refers to the total earning of the company which is computed by undertaking revenues and making adjustment underlying the cost for interest, doing business, taxes, interest, depreciation etc.

To calculate:

Computation of the error in total net income for combined three year period resulting from inventory errors.

Expert Solution
Check Mark

Answer to Problem 6BPSB

The total Net income pertaining to period for three years is $572,980.

Explanation of Solution

The total Net Income is computed by adding the three years Net Income as:

Before error:

  Year 1 + Year 2 + year 3

  175,800+212,270+184,910=$572,980

After Error:

  Year 1 + Year 2 + year 3

  157,800+256,270+158,910=$572,980

Hence total income of three years is not affected by errors because such errors are self correcting as every overstated income is automatically offset by the matching understatement in the subsequent year.

Conclusion:

Hence the total net income for three years is computed.

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Chapter 6 Solutions

FUNDAMENTAL ACCOUNTING PRINCIPLES

Ch. 6 - Prob. 11DQCh. 6 - Prob. 12DQCh. 6 - Inventory ownership Homestead Crafts, a...Ch. 6 - QS 6-2 Inventory costs C2 A car dealer acquires a...Ch. 6 - Prob. 3QSCh. 6 - Perpetual: Inventory costing with FIFO P1 A...Ch. 6 - Perpetual: Inventory costing with LIFO Refer to...Ch. 6 - Perpetual Inventory costing with weighted average...Ch. 6 - Periodic: Inventory costing with FIFO P3 Refer to...Ch. 6 - Periodic: Inventory costing with LIFO Refer to the...Ch. 6 - Periodic: Inventory costing with weighted average...Ch. 6 - Perpetual: Assigning costs with FIFO Trey Monson...Ch. 6 - QS6-11 Perpetual Inventory costing with LIFO Refer...Ch. 6 - QS 6-12 Perpetual: Inventory costing with weighted...Ch. 6 - QS6.13 Perpetual Inventory costing with specific...Ch. 6 - Periodic: Inventory costing with FIFO P3 Refer to...Ch. 6 - Periodic Inventory costing with LIFO P3 Refer to...Ch. 6 - Periodic: Inventory costing with weighted average...Ch. 6 - Periodic: Inventory costing with specific...Ch. 6 - QS 6-18 Contrasting inventory costing methods...Ch. 6 - Prob. 19QSCh. 6 - Inventory errors A2 In taking a physical inventory...Ch. 6 - Analyzing inventory A3 Endor Company begins the...Ch. 6 - Prob. 22QSCh. 6 - Inventory costs C2 A solar panel dealer acquires a...Ch. 6 - Exercise 6-1 Inventory ownership C1 1. At...Ch. 6 - Exercise 6-2 Inventory costs C2 Walberg...Ch. 6 - Exercise 6-3 Perpetual Inventory costing methods...Ch. 6 - Exercise 6-4 Perpetual: Income effects of...Ch. 6 - Exercise 6-5A Periodic: Inventory costing P3 Refer...Ch. 6 - Exercise 6-6A Periodic: Income effects of...Ch. 6 - Exercise 6-7 Perpetual Inventory costing...Ch. 6 - Exercise 6.8 Specific identification Refer to the...Ch. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Exercise 6-13 Inventory turnover and days' sales...Ch. 6 - Prob. 14ECh. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Exercise 6-1E Perpetual inventory costing P1 Tree...Ch. 6 - Exercise 6-19APeriodic inventory costing P3 I...Ch. 6 - Problem 6-1A Perpetual: Alternative cost...Ch. 6 - Prob. 2APSACh. 6 - Prob. 3APSACh. 6 - Prob. 4APSACh. 6 - Problem 6-5A Lower of cost or market P2 A physical...Ch. 6 - Prob. 6APSACh. 6 - Prob. 7APSACh. 6 - Prob. 8APSACh. 6 - Prob. 9APSACh. 6 - Prob. 10APSACh. 6 - Prob. 1BPSBCh. 6 - Prob. 2BPSBCh. 6 - Prob. 3BPSBCh. 6 - Prob. 4BPSBCh. 6 - Prob. 5BPSBCh. 6 - Prob. 6BPSBCh. 6 - Prob. 7BPSBCh. 6 - Prob. 8BPSBCh. 6 - Prob. 9BPSBCh. 6 - Prob. 10BPSBCh. 6 - Prob. 6SPCh. 6 - AA 6-1 Use Apple's financial statements in...Ch. 6 - AA 6-2 Comparative figures for Apple and Google...Ch. 6 - Prob. 3AACh. 6 - BTN 6-3 Golf Challenge Corp. is a retail sports...Ch. 6 - Prob. 2BTNCh. 6 - Prob. 3BTNCh. 6 - Prob. 4BTNCh. 6 - Prob. 5BTNCh. 6 - Prob. 6BTN
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