Problem 5-24A (Algo) Effect of inventory errors on financial statements LO 5-3 The following income statement was prepared for Frame Supplies for Year 1. FRAME SUPPLIES Income Statement For the Year Ended December 31, Year 1 $68,400 (37,620) Sales Cost of goods sold Gross margin Operating expenses Net income During the year-end audit, the following errors were discovered: 30,780 (8,520) $ 22,260 1. A $1,588 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual Inventory system is used.) 2. Sales to customers for $2,243 at December 31, Year 1, were not recorded in the books for Year 1. Also, the $1,422 cost of goods sold was not recorded. 3. A mathematical error was made in determining ending Inventory. Ending Inventory was understated by $973. (The Inventory account was mistakenly written down to the Cost of Goods Sold account.) Required Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (leave blank) the account. The first item for each error is recorded as an example,

Problem 5-24A (Algo) Effect of inventory errors on financial statements LO 5-3 The following income statement was prepared for Frame Supplies for Year 1. FRAME SUPPLIES Income Statement For the Year Ended December 31, Year 1 $68,400 (37,620) Sales Cost of goods sold Gross margin Operating expenses Net income During the year-end audit, the following errors were discovered: 30,780 (8,520) $ 22,260 1. A $1,588 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual Inventory system is used.) 2. Sales to customers for $2,243 at December 31, Year 1, were not recorded in the books for Year 1. Also, the $1,422 cost of goods sold was not recorded. 3. A mathematical error was made in determining ending Inventory. Ending Inventory was understated by $973. (The Inventory account was mistakenly written down to the Cost of Goods Sold account.) Required Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (leave blank) the account. The first item for each error is recorded as an example,

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 64E: ( Appendix 6B) Inventory Costing Methods: Periodic System Harrington Company had the following data...

See similar textbooks

Similar questions

If a group of inventory items costing $3,200 had been double counted during 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 10.2
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.
Problem 10 Indicate the effects of the following errors on cost of goods sold and net income. 1. Beginning inventory is understated by $10,000. 2. Ending inventory is overstated by $25,000. 3. Beginning inventory is overstated by $30,000 and ending inventory is understated by $10,000. nsidov 4. Ending inventory is understated by $5,000 and beginning inventory is understated by $5,000.
Current assets at 30 June 20-7 Martha's capital at 1 July 20-7 Gross profit for the year ending 30 June 20-8 Current assets at 30 June 20-8 TIP Parts a-e of this question require the skill of knowledge and understanding. You need to know the principles of inventory valuation and understand how this is applied to a given scenario. Part frequires the skill of analysis. You need to analyse the effect of the error. 13 Yee's payments for the year ended 31 December 20-8 included the following: Wages 2$ Insurance (for 12 months to 30 June 20-9) 2400 At 1 January 20-8, wages due amounted to $1300 and insurance prepaid amounted to $1140. At 31 December 20-8, wages due amounted to $1550. Write up the wages account and the insurance account as they would appear in Yee's ledger for the year ended 31 December 20-8. Balance the accounts and show the amounts transferred to the income statement. 14 Zeema's financial year ends on 30 September. She sublets part of her premises to Faith at an annual rent…
Effect of Inventory Errors During the taking of its physical inventory on December 31, 20Y3, Corbin Company incorrectly counted its inventory as $135,525 instead of the correct amount of $116,550. Indicate the effect of the misstatement on Corbin's December 31, 20Y3, balance sheet or income statement for the year ended December 31, 20Y3. For each, select if the amount is overstated or understated. Then, input the over or under amount, entered as a positive value. Cost of goods sold Balance sheet or income statement Overstated, Understated, Or no effect $ Current assets $ Gross profit $ Inventory $ Net income $ Stockholders' equity $ Total assets $
PARRISH 7-9 END OF PERIOD ADJUSTMENTS INVENTORY (PERPETUAL) Please solve the following and do your best to explain each step. That would be appreciated. Thank you GNU Compnay uses the perpetual method of recording inventory. Its records show the Inventory account balance of $15,889. A count of the inventory, however, finds only, $14,278 of inventory on hand. Record the entry needed by GNU to correct its records. Assume that inventory differences of more than 5% of the cost of inventory on hand will have a significant impact on the income statement amounts.
An error in the physical count of goods on hand at the end of the current period resulted in a $3000 understatement of the ending inventory. the effect of this error in the next period is to overstate beginning inventory understate gross profit understate net income understate begining inventory
Inventory Errors 1. On December 31, ABC Company counted and recorded $500,000 of inventory. This count did not include $80,000 of goods in transit, shipped to ABC Company on December 29, FOB shipping point. ABC Company recorded the purchase correctly on December 29 when the goods were shipped. A. Determine the correct December 31 inventory balance. B. Identify any accounts that are in error, and state the amount and direction (overstatement or understatement) of the error. Explain for each answer please, I don't understand.
( Appendix 6B) Inventory Costing Methods: Periodic System Harrington Company had the following data for inventory during a recent year: Assume that Harrington uses a periodic inventory accounting system. Required: 1. Using the FIFO, LIFO, and average cost methods, compute the ending inventory and cost of goods sold. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.) 2. CONCEPTUAL CONNECTION Which method will produce the most realistic amount for income? For inventory? 3. CONCEPTUAL CONNECTION Which method will produce the lowest amount paid for taxes?
Assuming a companys year-end inventory were overstated by $5,000, 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: Equity
Errors A company that uses the periodic inventory system makes the following errors: 1. It omits a purchase on credit from the purchases account and the ending inventory. 2. It omits a purchase on credit from the purchases account, but the ending inventory is correct. 3. It overstates the ending inventory, but purchases arc correct. Required: Indicate the effect of the preceding errors on the income statement and the balance sheet of the current and succeeding years.
Lower-of-cost-or-market inventory Data on the physical inventory of Katus Products Co. as of December 31 follows: Description Inventory Quantity Market Value per Unit (Net Realizable Value) A54 37 56 C77 24 178 F66 30 132 H83 21 545 K12 375 5 Q58 90 18 S36 8 235 V97 140 20 Y88 17 744 Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Description Last Purchases Invoice Next-to-the-Last Purchases Invoice Quantity Purchased Unit Cost Quantity Purchased Unit Cost A54 30 60 40 58 C77 25 174 15 180 F66 20 130 15 128 H83 6 547 15 540 K12 500 6 500 7 Q58 75 25 80 26 S36 5 256 4 260 V97 100 17 115 16 Y88 10 750 8 740 Instructions Determine the inventory at cost and also at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet, and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed as an example. Inventory Sheet December 31 Description Unit Inventory Quantity Cost per Unit Market Value per Unit(Net Realizable Value) Total Cost Market LCM A54 37 30 60 56 1,800 1,680 7 58 56 406 392 2,206 2,072 2,072