South-Western Federal Taxation 2019: Individual Income Taxes (Intuit ProConnect Tax Online 2017 & RIA Checkpoint 1 term (6 months) Printed Access Card)
42nd Edition
ISBN: 9781337702546
Author: James C. Young, William H. Hoffman, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
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Chapter 18, Problem 26DQ
To determine
Explain, if the concern of CFO is valid in the given case.
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Grocery Ltd is a retailer and sells various products. It follows the perpetual inventory method. Because of supply chain disruptions, the cost of purchasing products increased during the year 2021. However, considering the economic hardship of people caused by Covid-19 pandemic, the company did not increase its sales price. The company purchases goods on three-month credit and sells goods for cash.
The following information relates to the inventories of a particular product and related balances and transactions of the company for the year ended 31 December 2021. The company uses the weighted average method to assign costs to goods sold and ending inventories. The sales price is $3.50 per unit. The income tax rate is 28%.
1 January 2021
Beginning balances:
Cash: $60,000
Accounts payable: $8,500.
Inventory 10,000 units @ $2.10 per unit.
January-February 2021
Sold 4,000 units.
February 2021
Sales returns: 10 units. Cash is refunded to customers on return of the…
Redford Company hired a new store manager in October 2021, who determined the ending inventory on December 31, 2021, to be
$66,000. In March, 2022, the company discovered that the December 31, 2021 ending inventory should have been $75,600. The
December 31, 2022, inventory was correct. (Assume that the errors were not corrected until after 2022.) Ignore income taxes.
Required:
Complete the following table to show the effects of the inventory error on the four amounts listed. Give the amount of the discrepancy
and indicate whether it was overstated, understated or no effect.
Year
2021
2022
Ending Inventory
9,600 Understated
Cost of Goods Sold
Net Income
Scruffy Brothers Supply does a physical inventory count when the business is closed at the end of each
quarter. At the end of the first quarter in 2020 Scuffy Brothers Supply discovers that it has overvalued
their inventory due to an honest miscounting error by $150,000. In other words, the value of their
inventory was overstated by $150,000. Make the necessary entries to correct this error at the end of
the quarter. Think through the impact this incorrect valuation has on the company's financial
statements and make the necessary adjusting entries:
(a) Debits
Credits
(b) Debits
Credits
Chapter 18 Solutions
South-Western Federal Taxation 2019: Individual Income Taxes (Intuit ProConnect Tax Online 2017 & RIA Checkpoint 1 term (6 months) Printed Access Card)
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - Prob. 10DQCh. 18 - Prob. 12DQ
Ch. 18 - LO.2 Emerald Motors is an automobile dealer. The...Ch. 18 - Prob. 14DQCh. 18 - Prob. 15DQCh. 18 - Prob. 16DQCh. 18 - Prob. 17DQCh. 18 - Prob. 18DQCh. 18 - LO.2, 5 What are the similarities between the crop...Ch. 18 - Prob. 20DQCh. 18 - Prob. 21DQCh. 18 - Prob. 22DQCh. 18 - LO.6 Largo Company is an engineering consulting...Ch. 18 - Prob. 24DQCh. 18 - Prob. 25DQCh. 18 - Prob. 26DQCh. 18 - Prob. 27CECh. 18 - Prob. 28CECh. 18 - Prob. 29CECh. 18 - Prob. 30CECh. 18 - Prob. 31CECh. 18 - Prob. 32CECh. 18 - Prob. 33CECh. 18 - Prob. 34CECh. 18 - Prob. 37CECh. 18 - Prob. 39PCh. 18 - Prob. 40PCh. 18 - Prob. 41PCh. 18 - Prob. 42PCh. 18 - Prob. 43PCh. 18 - Prob. 44PCh. 18 - Prob. 45PCh. 18 - Prob. 46PCh. 18 - Prob. 47PCh. 18 - Prob. 48PCh. 18 - Prob. 49PCh. 18 - Jeffrey Boyd, the president of Eagle Furniture...Ch. 18 - Floyd, a cash basis taxpayer, has received an...Ch. 18 - Prob. 52PCh. 18 - Prob. 53PCh. 18 - Prob. 54PCh. 18 - Prob. 55PCh. 18 - Prob. 56PCh. 18 - Prob. 57PCh. 18 - Prob. 58PCh. 18 - Ostrich Company makes gasoline storage tanks....Ch. 18 - Prob. 61PCh. 18 - Grouse Company is a furniture retailer whose...Ch. 18 - Lavender Manufacturing Company began business in...Ch. 18 - Silver Creek Ranch LLC is a small, family-owned...Ch. 18 - Prob. 65PCh. 18 - Prob. 66PCh. 18 - Prob. 67PCh. 18 - Prob. 68PCh. 18 - Ven Company is a retailer. In 2018, its before-tax...Ch. 18 - Prob. 1RPCh. 18 - Prob. 2RPCh. 18 - Prob. 4RPCh. 18 - Paula has sales that qualify to be reported on the...
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- Bhushan Company has been using LIFO for inventory purposes because it would prefer to keep gross profits low for tax purposes. In its second year of operation (20-2), the controller pointed out that this strategy did not appear to work and suggested that FIFO cost of goods sold would have been higher than LIFO cost of goods sold for 20-2. Is this possible? REQUIRED Using the information provided, compute the cost of goods sold for 20-1 and 20-2 comparing the LIFO and FIFO methods.arrow_forwardHunter, Inc. uses the LIFO method of inventory costing and is facing the possibility of a LIFO liquidation for the current year. Merchandise purchase prices have increased since the LIFO method was adopted. If the company does not purchase additional merchandise before year-end, which one of the following effects will occur as a result of a LIFO liquidation? Question 24 options: Reported earnings for the current year will be higher. Income taxes for the current year will be lower. Cost of goods sold for the current year will be higher. Gross margin for the current year will be lower.arrow_forwardA firm recorded it's ending inventory for the previous year at $40,000. It realized at the end of the first quarter of the current year that the number was misstated and should actually be $30,000. What corrective entries need to occur to ensure net income is not affected at the end of the current year? There are no corrections to be made. The firm should account for the misstated inventory in a separate cost of goods sold entry. There is no way to fix the entry and the net income will remain affected. The firm should account for the misstated inventory at the end of the current year.arrow_forward
- In 2007, after the 20X6 annual financial statements had been issued, Marcella Stores Inc. discovered that a significant transposition error had been made in recording the ending inventory for 20X6. The inventory had been recorded as $5,260,000 when it should have been $2,560,000. The average income tax rate is 30%. Required: 1. This part of the question is not part of your Connect assignment. 2. Prepare any journal entries that would be necessary in 20X7 to correct this error. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 1 Record the entry to ajdust the error in inventory.arrow_forwardCan you help me with this question? Thank u so much!arrow_forwardSequoia Co. is evaluating its inventory, computer paper, at the end of the period. The cost of each package of paper costs Sequoia $5 and there are 5,000 units in ending inventory. They sold 27,000 packages during the period. Due to increased use of the electronic cloud, the net realizable value of each package of paper is $3.50. What is the correct amount of the inventory write-down?arrow_forward
- Jeanette Corporation's president is in a dilemma regarding which inventory method (LIFO or FIFO) to use. The controller provides the following list of factors that should be considered before making a choice. a. Jeanette has borrowed money during the current month and has entered into a debt contract. The covenants of this contract require Jeanette to achieve a certain amount of net income and mintain a certain amount of working capital. b. The Jeanette's board of directors is contemplating a proposal to reward the top corporate management with an incentive bonus based on accounting net income. c. The vice president of finance suggests using the LIFO method for tax purposes and the FIFO method for financial reporting purposes. With lower taxable income, Jeanette can save on the current tax it pays, and, at the same time, it can show higher income in the financial reports and "look good." d. The controller cautions that while the LIFO method could reduce the current period tax…arrow_forwardLewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40%, calculate the tax savings this would have made for 2009 to 2011. Would you recommend that Lewis make this change?arrow_forwardMaxi Corporation uses the unit LIFO inventory method. The costs of the company’s products have been steadilyrising since the company began operations in 2008 and cost increases are expected to continue. The chief financialofficer of the company would like to continue using LIFO because of its tax advantages. However, the controller,Sally Hamel, would like to reduce the recordkeeping costs of LIFO that have steadily increased over the years asnew products have been added to the company’s product line. Sally suggested the use of the dollar-value LIFOmethod. The chief financial officer has asked Sally to describe the dollar-value LIFO procedure.Required:Describe the dollar-value LIFO procedurearrow_forward
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