FINANCIAL ACCT.FUND.(LOOSELEAF)
7th Edition
ISBN: 9781260482867
Author: Wild
Publisher: MCG
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Chapter 5, Problem 6PSB
Analysis of inventory errors
Hallam Company’s financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is overstated by $18,000 and Year 2 ending inventory is understated by $26,000.
Required
- For each key financial statement figure (a), (b), (c), and (d) above - prepare a table similar to the following to show the adjustments necessary to correct the reported amounts. Check (1) Corrected net income: Year 1, $157,800; Year 2, $256,270; Year 3, $158,910
- What is the total error in combined net income for the three-year period resulting from the inventory errors? Explain.
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Students have asked these similar questions
M7-17 Calculating Effect of Inventory Errors
For each of the following scenarios, determine the effect of the error on income in the current period and in the subsequent period. To answer these questions, rely on the inventory equation: Beginning inventory + Purchases - Cost of goods sold = Ending inventory
a. Porter Company received a shipment of merchandise costing $32,000 near the end of the fiscal year. The shipment was mistakenly recorded at a cost of $23,000.
b. Chiu, Inc., purchased merchandise costing $16,000. When the shipment was received, it was determined that the merchandise was damaged in shipment. The goods were returned to the supplier, but the accounting department was not notified and the invoice was paid.
c. After taking a physical count of its inventory, Murray Corporation determined that it had “shrink” of $12,500, and the books were adjusted accordingly. However, inventory costing $5,000 was never counted
Navajo Company's year-end financial statements show the following. The company recently discovered that in making physical counts
of inventory, it had made the following errors: Year 1 ending inventory is understated by $66,000 and Year 2 ending inventory is
overstated by $36,000.
Mc
raw
Will
For Year Ended December 31
(a) Cost of goods sold
(b) Net income
(c) Total current assets
(d) Total equity
Required:
1. For each key financial statement figure-(a), (b), (c), and (d) above-prepare a table to show the adjustments necessary to correct the
reported amounts.
2. What is the total error in combined net income for the three-year period resulting from the inventory errors?
Required 1 Required 2.
Complete this question by entering your answers in the tabs below.
Cost of goods sold:
Reported amount
Adjustment for 12/31/Year 1 error
Adjustment for 12/31/Year 2 error
Corrected amount
Year 1
$ 741,000
Year 2
$ 971,000
291,000
1,376,000
284,000
1,263,000
1,403,000 1,596,000
For each key…
Navajo Company's year-end financial statements show the following. The company recently discovered that in making physical counts
of inventory, it had made the following errors: Year 1 ending inventory is understated by $60,000 and Year 2 ending inventory is
overstated by $30,000.
Year 2
965,000 $
285,000
1,370,000
1,590,000
Year 3
800,000
260,000
1,240,000
1,255,000
For Year Ended December 31
Year 1
(a) Cost of goods sold
(b) Net income
(c) Total current assets
(d) Total equity
24
735,000 $
278,000
1,257,000
1,397,000
Required:
1. For each key financial statement figure-(a), (b), (C), and (d) above-prepare a table to show the adjustments necessary to correct the
reported amounts.
2. What is the total error in combined net income for the three-year period resulting from the inventory errors?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
For each key financial statement figure-(a), (b), (c), and (d) above-prepare a table to show the adjustments…
Chapter 5 Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
Ch. 5 - Use the following information from Marvel Company...Ch. 5 - Use the following information from marvel company...Ch. 5 - Use the following information from Marvel Company...Ch. 5 - Use the following information from Marvel company...Ch. 5 - Periodic: A company reports the following...Ch. 5 - Prob. 6MCQCh. 5 - Prob. 1DQCh. 5 - Prob. 2DQCh. 5 - Prob. 3DQCh. 5 - Prob. 4DQ
Ch. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - Prob. 10DQCh. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 5QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Prob. 12QSCh. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Prob. 18QSCh. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - Prob. 23QSCh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Perpetual: Alternative cost flows P1 Warnerwoods...Ch. 5 - Periodic: Alternative cost flows P3 Refer to the...Ch. 5 - Perpetual: Alternative cost flows P1 Montoure...Ch. 5 - Prob. 4PSACh. 5 - Prob. 5PSACh. 5 - Analysis of inventory errors A2 Navajo Company’s...Ch. 5 - Prob. 7PSACh. 5 - Periodic: Income comparisons and cost flows A1P3...Ch. 5 - Prob. 9PSACh. 5 - Prob. 10PSACh. 5 - Prob. 1PSBCh. 5 - Prob. 2PSBCh. 5 - Prob. 3PSBCh. 5 - Prob. 4PSBCh. 5 - Lower of cost or market P2 A physical inventory of...Ch. 5 - Analysis of inventory errors A2 Hallam Company’s...Ch. 5 - Prob. 7PSBCh. 5 - Periodic: Income comparisons and cost flows A1P3...Ch. 5 - Prob. 9PSBCh. 5 - Prob. 10PSBCh. 5 - Prob. 5SPCh. 5 - Prob. 1AACh. 5 - Prob. 2AACh. 5 - Prob. 3AACh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - Visit four retail stores with another classmate....
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Errors As controller of Lerner Company, which uses a periodic inventory system, you discover the following errors in the current year: 1. Merchandise with a cost of 17,500 was properly included in the final inventory, but the purchase was not recorded until the following year. 2. Merchandise purchases are in transit under terms of FOB shipping point. They have been excluded from the inventory, but the purchase was recorded in the current year on the receipt of the invoice of 4,300. 3. Goods out on consignment have been excluded from inventory. 4. Merchandise purchases under terms FOB shipping point have been omitted from the purchases account and the ending inventory. The purchases were recorded in the following year. 5. Goods held on consignment from Talbert Supply Co. were included in the inventory. Required: For each error, indicate the effect on the ending inventory and the net income for the current year and on the net income for the following year.arrow_forwardIf a group of inventory items costing $15,000 had been omitted from the year-end inventory count, what impact would the error have on the following inventory calculations? Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______. Table 10.1arrow_forwardAssuming a companys year-end inventory were understated by $16,000, indicate the effect (overstated/understated/no effect) of the error on the following balance sheet and income statement accounts. A. Income Statement: Cost of Goods Sold B. Income Statement: Net Income C. Balance Sheet: Assets D. Balance Sheet: Liabilities E. Balance Sheet: Equityarrow_forward
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