ssume that because of a clerical error, the ending inventory is reported to be 1,070 units rather than the actual in hand. a. If FIFO is used, calculate the amount of the understatement or overstatement in the cost of sales for the first urrent year. Overstatement of cost of sales
ssume that because of a clerical error, the ending inventory is reported to be 1,070 units rather than the actual in hand. a. If FIFO is used, calculate the amount of the understatement or overstatement in the cost of sales for the first urrent year. Overstatement of cost of sales
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:Assume that because of a clerical error, the ending inventory is reported to be 1,070 units rather than the actual number of units (1,170)
on hand.
5a. If FIFO is used, calculate the amount of the understatement or overstatement in the cost of sales for the first six months of the
current year.
Overstatement
of cost of sales
5b. If FIFO is used, calculate the amount of the understatement or overstatement in the current assets at June 30 of the current year.
Understatement
of current assets

Transcribed Image Text:Smart Company prepared its annual financial statements dated December 31, 2020. The company applies the FIFO inventory costing
method; however, the company neglected to apply the LC&NRV valuation to the ending inventory. The preliminary 2020 statement of
earnings follows:
Sales revenue
Cost of sales
Beginning inventory
Purchases
Cost of goods available for sale
Ending inventory (FIFO cost)
Cost of sales
Gross profit
Operating expenses
Pretax earnings
Income tax expense (30%)
Net earnings
Item Quantity
ABCD
Assume that you have been asked to restate the 2020 financial statements to incorporate the LC&NRV inventory valuation rule. You
have developed the following data relating to the ending inventory at December 31, 2020:
Acquisition
Cost
Unit
Total
3,180 $4.30 $13,674
10,269
1,630 6.30
7,230 2.80
3,330 7.30
20,244
24,309
$68,496
$ 32,300
197,000
229,300
68,496
Net Realizable
Value
$5.30
4.80
4.80
5.30
$293,000
160,804
132, 196
63,300
68,896
20,669
$ 48,227
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