Chapter 20, Problem 20.12BYP

Requirement 1:

To determine

Inventory error

Inventory errors are sometimes caused by making mistake in physical count, in pricing the inventory correctly, or in recognizing the transfer of title for the goods in transit. These inventory errors affect both the income statement as well as balance sheet.

To Identify: The reason behind the bonuses which will be negatively affected and the effect on pretax earnings.

Requirement 2:

To determine

The way the error will be reported in the company’s financial statement if it is discovered by the auditors in the next year’s audit.

Requirement 3:

To determine

To Discuss: The ethical dilemma faced by J.