Intermediate Accounting, Student Value Edition (2nd Edition)
2nd Edition
ISBN: 9780134732145
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 21, Problem 21.12BE
To determine
To prepare: The correct
Given information:
Inventory stock entered as of $690,000 instead of $960,000.
The inventory is understated by $270,000.
The error incurred in the year 2016 and is discovered in 2018.
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A retail company recently completed a physical count of ending merchandise inventory to use in preparing
adjusting entries. In determining the cost of the counted inventory, company employees failed to consider
that $3.000 of ineoming goods had been shipped by a supplier on December 31 under an FOB shipping
point agreement. These goods had been recorded in Merchandise Inventory as a purchase, but rhey were
nor included in the physical count because they were in transit.
a. Explain how this overlooked fact impacts the company's balance sheet and income statement.
b. Indicate whether this overlooked fact results in an overstatement. understatement, or no effect on the
following separate ratios: return on assets, debt ratico. current ratio, and acid-test ratio.
Exercise 5-12
Interpreting a physical
count error as inventory
shrinkage
A1
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Chapter 21 Solutions
Intermediate Accounting, Student Value Edition (2nd Edition)
Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3QCh. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5QCh. 21 - Prob. 21.6QCh. 21 - Prob. 21.7QCh. 21 - Prob. 21.8QCh. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...
Ch. 21 - Prob. 21.1MCCh. 21 - Prob. 21.2MCCh. 21 - Prob. 21.3MCCh. 21 - Prob. 21.4MCCh. 21 - Prob. 21.5MCCh. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.6BECh. 21 - Prob. 21.7BECh. 21 - Prob. 21.8BECh. 21 - Prob. 21.9BECh. 21 - Prob. 21.10BECh. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Prob. 21.13BECh. 21 - Prob. 21.14BECh. 21 - Change in Accounting Principle, Inventory. Massi...Ch. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.3ECh. 21 - Change in Accounting Principle, Inventory. Winthur...Ch. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Error Analysis and Correction. Feinstein and...Ch. 21 - Prob. 21.8ECh. 21 - Prob. 21.9ECh. 21 - Prob. 21.10ECh. 21 - Change in Accounting Principle, Inventory. Second...Ch. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Change in Estimate, Inventory, Bad Debt Expense....Ch. 21 - Prob. 21.7PCh. 21 - Cases Judgment Case Judgment Case: Materiality and...Ch. 21 - Prob. 1FSCCh. 21 - Surfing the Standards: Change in Accounting...Ch. 21 - Prob. 1BCC
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- Refer to the information in E22-13. Required: Prepare the correcting journal entries if the company discovers each error 2 years after it is made and it has closed the books for the second year. Ignore income taxes. E22-13: The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-vear life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.arrow_forwardIndicate the effect of each of the following errors on the following balance sheet and income statement items for the current and succeeding years: beginning inventory, ending inventory, accounts payable, retained earnings, purchases, cost of goods sold, net income, and earnings per share. a. The ending inventory is overstated. b. Merchandise purchased on account and received was not recorded in the purchases account until the succeeding year although the item was included in inventory of the current year. c. Merchandise purchased on account and shipped FOB shipping point was not recorded in either the purchases account or the ending inventory. d. The ending inventory was understated as a result of the exclusion of goods sent out on consignment.arrow_forwardEffects of an Error in Ending Inventory Waymire Company prepared the partial income statements presented below for 2019 and 2018. During 2020, Waymires accountant discovered that ending inventory for 2018 had been understated by $6,500. Required: 1. Prepare corrected income statements for 2019 and 2018. 2. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item (ignore the effect of income taxes). Indicate whether each error is an overstatement (+) or an understatement (-).arrow_forward
- Company Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forwardCompany Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forwardA 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.arrow_forward
- A new accountant prepared the following general journal entry on March 31, 2024, for Rock Castle Construction. The general journal entry includes an error. Choose the best explanation of the error from the choices provided. DR: 12000 Inventory $5,575 CR: 10100 Checking $5,575 Purchase of inventory Please add checkmark next to the correct answer(s). 1 Inventory should have been credited, not debited. 2 The account # for inventory is incorrect; should be 12100. 3 The checking account should have been debited, not credited. 4 The Inventory account should never be adjusted by a general journal entry. 5 None of the abovearrow_forwardPlease help mearrow_forwardAZ Pool Supplies's merchandise inventory data for the year ended December 31, 2017, follow: E (Click the icon to view the inventory data.) Requirements Assume that the ending merchandise inventory was accidentally overstated by $1,800. What are the correct amounts for cost of goods sold and gross profit? How would the inventory error affect AZ Pool Supplies's cost of goods sold and gross profit for the year ended December 31, 2018, if the error is not corrected in 2017? 1. 2. Requirement 1. Assume that the ending merchandise inventory was accidentally overstated by $1,800. What are the correct amounts for cost of goods sold and gross profit? Cost of goods sold in 2017 would be $34500 Data Table Sales Revenue 71,000 Cost of Goods Sold: Beginning Merchandise Inventory %24 3,600 Net Cost of Purchases 25,100 Cost of Goods Available for Sale 28,700 Less: Ending Merchandise Inventory 5,100 Enter your answer in the answer box and then click Check Answer. Cost of Goods Sold 23.600 47,400 Gross…arrow_forward
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