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7 Jul 2018

On Saturday, June 30, BD pool Supplies sold merchandise to E.Luang on account. The sales price was $3,800, and the cost of goodssold was $3,000. The sales revenue was recorded immediatly, but theentry recording the cost of goods sold was dated Monday, July 2. Asa result, net income for June was:


a. Overstated by $3,800

b. Overstated by $3,000

c. Overstated by $800.00

d. Not affected, but the net income for July is understated

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Deanna Hettinger
Deanna HettingerLv2
8 Jul 2018

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On July 31, Tractor Supplies sold merchandise to J. Robsonon account. The sales price was $8,400, and the cost of goods soldwas $6,300. The sales revenue was recorded immediately, but theentry recording the cost of goods sold was dated August 2. As aresult, net income for July was


overstated by $2,100.
overstated by $6,300.
not affected, but the net income for Augustis understated.
overstated by $8,400.

Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result:

Required: Using the information given in the first paragraph of this problem, read each statement and circle either UNDERSTATED or OVERSTATED as the effect of the error. Also calculate the total effect on cost of goods sold and put it in a blank in statement D.

A. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of beginning inventory.

B. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of ending inventory.

C. Poppy's cost of goods sold for this year was UNDERSTATED or OVERSTATED because of purchases.

D. Total cost of goods sold for this year was UNDERSTATED or OVERSTATED by_________.

E. Net income for this year was UNDERSTATED or OVERSTATED.

Capwell Corporation uses a periodic inventory system. Thecompany's ending inventory on December 31, 2018, its fiscal-yearend, based on a physical count, was determined to be $338,000.Capwell's unadjusted trial balance also showed the followingaccount balances: Purchases, $740,000; Accounts payable; $270,000;Accounts receivable, $285,000; Sales revenue, $920,000.

The internal audit department discovered the following items:

Goods valued at $44,000 held on consignment from Dix Companywere included in the physical count but not recorded as apurchase.

Purchases from Xavier Corporation were incorrectly recorded at$64,000 instead of the correct amount of $46,000. The correctamount was included in the ending inventory.

Goods that cost $37,000 were shipped from a vendor on December28, 2018, terms f.o.b. destination. The merchandise arrived onJanuary 3, 2019. The purchase and related accounts payable wererecorded in 2018.

One inventory item was incorrectly included in ending inventoryas 220 units, instead of the correct amount of 1,600 units. Thisitem cost $50 per unit.

The 2017 balance sheet reported inventory of $472,000. Theinternal auditors discovered that a mathematical error caused thisinventory to be understated by $74,000. This amount is consideredto be material. Comparative financial statements will beissued.

Goods shipped to a customer f.o.b. destination on December 25,2018, were received by the customer on January 4, 2019. The salesprice was $52,000 and the merchandise cost $28,000. The sale andcorresponding accounts receivable were recorded in 2018.

Goods shipped from a vendor f.o.b. shipping point on December27, 2018, were received on January 3, 2019. The merchandise cost$30,000. The purchase was not recorded until 2019.


Required:
1. Determine the correct amounts for 2018 endinginventory, purchases, accounts payable, accounts receivable, andsales revenue.
2. Calculate cost of goods sold for 2018.
3. What was the effect of the error in endinginventory on 2017 before-tax income

Determine the correct amounts for 2018 ending inventory,purchases, accounts payable, accounts receivable, sales revenue,and cost of goods sold.

Ending inventory
Purchases
Accounts payable
Accounts receivable
Sales revenue
Cost of goods sold

What was the effect of the error in ending inventory on 2017before-tax income?

2017 before-tax incomewas by

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