(Inventory Errors) At December 31, 2016, Stacy McGill Corporation reported current assets of $370,000 and current liabilities of $200,000. The following items may have been recorded incorrectly.1. Goods purchased costing $22,000 were shipped f.o.b. shipping point by a supplier on December 28. McGill received and recorded the invoice on December 29, 2016, but the goods were not included in McGill’s physical count of inventory because they were not received until January 4, 2017.2. Goods purchased costing $15,000 were shipped f.o.b. destination by a supplier on December 26. McGill received and recorded the invoice on December 31, but the goods were not included in McGill’s 2016 physical count of inventory because they were not received until January 2, 2017.3. Goods held on consignment from Claudia Kishi Company were included in McGill’s December 31, 2016, physical count of inventory at $13,000.4. Freight-in of $3,000 was debited to advertising expense on December 28, 2016.Instructions(a) Compute the current ratio based on McGill’s balance sheet.(b) Recompute the current ratio after corrections are made.(c) By what amount will income (before taxes) be adjusted up or down as a result of the corrections?
(Inventory Errors) At December 31, 2016, Stacy McGill Corporation reported current assets of $370,000 and current liabilities of $200,000. The following items may have been recorded incorrectly.
1. Goods purchased costing $22,000 were shipped f.o.b. shipping point by a supplier on December 28. McGill received and recorded the invoice on December 29, 2016, but the goods were not included in McGill’s physical count of inventory because they were not received until January 4, 2017.
2. Goods purchased costing $15,000 were shipped f.o.b. destination by a supplier on December 26. McGill received and recorded the invoice on December 31, but the goods were not included in McGill’s 2016 physical count of inventory because they were not received until January 2, 2017.
3. Goods held on consignment from Claudia Kishi Company were included in McGill’s December 31, 2016, physical count of inventory at $13,000.
4. Freight-in of $3,000 was debited to advertising expense on December 28, 2016.
Instructions
(a) Compute the
(b) Recompute the current ratio after corrections are made.
(c) By what amount will income (before taxes) be adjusted up or down as a result of the corrections?
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