Intermediate Accounting: Reporting and Analysis
2nd Edition
ISBN: 9781285453828
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 8, Problem 10MC
A 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:
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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.
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.
Under the periodic inventory system, the merchandise inventory account is not kept up to date for purchases and sales. As a result, the inventory shrinkage cannot be directly determined. True or False
Chapter 8 Solutions
Intermediate Accounting: Reporting and Analysis
Ch. 8 - Prob. 1GICh. 8 - Define the upper and lower constraints used in the...Ch. 8 - How may a company apply the lower of cost or a...Ch. 8 - What is the major criticism of the lower of cost...Ch. 8 - Prob. 5GICh. 8 - Prob. 6GICh. 8 - Prob. 7GICh. 8 - Prob. 8GICh. 8 - What is the basic assumption underlying the gross...Ch. 8 - Prob. 10GI
Ch. 8 - Explain the meaning of the following terms:...Ch. 8 - Prob. 12GICh. 8 - Prob. 13GICh. 8 - The retail inventory method indicated an inventory...Ch. 8 - Prob. 15GICh. 8 - Indicate the effect of each of the following...Ch. 8 - Sienna Company uses the FIFO cost flow assumption....Ch. 8 - Prob. 2MCCh. 8 - Prob. 3MCCh. 8 - Prob. 4MCCh. 8 - Prob. 5MCCh. 8 - Under the retail inventory method, freight-in...Ch. 8 - The retail inventory method would include which of...Ch. 8 - Prob. 8MCCh. 8 - Estimates of price-level changes for specific...Ch. 8 - A company forgets to record a purchase on credit...Ch. 8 - The following information is available regarding...Ch. 8 - Each unit of Black Corporations inventory has a...Ch. 8 - Prob. 3RECh. 8 - Prob. 4RECh. 8 - Prob. 5RECh. 8 - Kays Beauty Supply uses the gross profit method to...Ch. 8 - Uncle Butchs Hunting Supply Shop reports the...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Use the information in RE8-7. Calculate Uncle...Ch. 8 - Johnson Corporation had beginning inventory of...Ch. 8 - Prob. 12RECh. 8 - Prob. 13RECh. 8 - Prob. 14RECh. 8 - Lower of Cost or Market Stiles Corporation uses...Ch. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Prob. 4ECh. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Gross Profit Method: Estimation of Theft Loss You...Ch. 8 - Retail Inventory Method Harmes Company is a...Ch. 8 - Prob. 10ECh. 8 - Retail Inventory Method The following information...Ch. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - Prob. 14ECh. 8 - Errors A company that uses the periodic inventory...Ch. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Lower of Cost or Market Palmquist Company has five...Ch. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Retail Inventory Method Weber Corporation uses the...Ch. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Errors As controller of Lerner Company, which uses...Ch. 8 - Prob. 14PCh. 8 - (Appendix 8.1) Lower of Cost or Market The...Ch. 8 - Prob. 16PCh. 8 - Prob. 1CCh. 8 - Sandberg Paint Company, your client, manufactures...Ch. 8 - Prob. 3CCh. 8 - Prob. 4CCh. 8 - Prob. 5CCh. 8 - Prob. 6CCh. 8 - Prob. 7CCh. 8 - Various Inventory Issues Hudson Company, which is...Ch. 8 - Prob. 10CCh. 8 - Prob. 11C
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- 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_forwardExplain why errors in the valuation of inventory at the endof the year are sometimes called “counterbalancing” or“self-correcting.”arrow_forwardSome inventory errors are said to be “self-correcting,” in that the error has the opposite financial statement effectin the period following the error, thereby “correcting,” the original account balance errors.Required:Despite this self-correcting feature, discuss why these errors should not be ignored and describe the steps requiredto account for the error correction.arrow_forward
- A company using a periodic inventory system neglected to record a purchase of merchandise on account at year-end. This merchandise, however, was correctly included in the year-end physical count. How will these errors affect inventory at year- end and cost of goods sold for the year? * O No effect, Understated O No effect, Overstated Understated, Understated O Understated, No effectarrow_forwardWhere there is a reversal of a previous inventory write-down, the entry would involve a _______to the inventory account and a ___________to an income account labelled ‘Reversal of previous inventory write-down’ or its equivalent. deletion; creation credit; debit None of the given options are correct debit; creditarrow_forwardErrors in Ending Inventory From time to time, business news will report that the management of a company has misstated its profits by knowingly establishing an incorrect amount for its ending inventory. Required: Explain how a misstatement of ending inventory can affect profit.arrow_forward
- The following are independent errors made by a company that uses a periodic inventory system: a. failure to record a purchase of inventory on credit (however, inventory was properly counted at the end of the period) b. expensing the purchase of a machine c. failure to accrue wages d. failure to record an allowance for uncollectibles e. including collections in advance as revenue f. including payments in advance as expenses g. failure to accrue warranty costs h. discount on a note payable issued for purchase of a machine is ignored i. failure to record depreciation expense on assets purchased during the year Required: Next Level Indicate the effect of each of the preceding errors on the companys assets, liabilities, shareholders equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (), or no effect (NE).arrow_forwardHow long does it take an inventory error affecting ending inventory to correct itself in the financial statements? Explain.arrow_forwardDo you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors are said to correct themselves. Market usually means replacement cost of inventory when applied in the LCM. Cost of goods available for sale equals ending inventory plus cost of sales.arrow_forward
- A retail business like Best Buy experiences some loss of inventory due to shoplifting, employee theft, or errors. The difference between the physical inventory count at the end of the accounting period and the balance of Merchandise Inventory in the accounting records is called ___________. Group of answer choices inventory reduction. inventory theft. inventory loss. inventory shrinkage or inventory shortage.arrow_forwardUnder a perpetual inventory system, acquisition of inventory is dented to the purchases account. True or false?arrow_forwardDo you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors as said to correct themselves. Market usually means replacement cost of inventory when applied in the LMC. Cost of goods available for sale equals the inventory plus cost of sales.arrow_forward
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