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
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.
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What was the effect of the error in ending inventory on 2017before-tax income?
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Related questions
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companyâs accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31, 2018.
| MUSIC-IS-US, INC. | |||||||
| TRIAL BALANCE | |||||||
| DECEMBER 31, 2018 | |||||||
| Cash | $ | 45,000 | |||||
| Marketable securities | 26,000 | ||||||
| Accounts receivable | 130,000 | ||||||
| Allowance for doubtful accounts | $ | 5,100 | |||||
| Merchandise inventory | 256,000 | ||||||
| Office supplies | 1,900 | ||||||
| Prepaid insurance | 7,040 | ||||||
| Building and fixtures | 1,794,000 | ||||||
| Accumulated depreciation | 797,000 | ||||||
| Land | 66,800 | ||||||
| Accounts payable | 69,000 | ||||||
| Unearned customer deposits | 7,800 | ||||||
| Income taxes payable | 75,000 | ||||||
| Capital stock | 960,000 | ||||||
| Retained earnings | 238,200 | ||||||
| Unrealized holding gain on investments | 5,100 | ||||||
| Sales | 1,651,340 | ||||||
| Cost of goods sold | 953,000 | ||||||
| Bank service charges | 200 | ||||||
| Uncollectible accounts expense | 8,300 | ||||||
| Salary and wages expense | 392,000 | ||||||
| Office supplies expense | 300 | ||||||
| Insurance expense | 6,000 | ||||||
| Utilities expense | 3,000 | ||||||
| Depreciation expense | 44,000 | ||||||
| Income tax expense | 75,000 | ||||||
| $ | 3,808,540 | $ | 3,808,540 | ||||
Other information pertaining to the companyâs trial balance is provided as follows.
1. The most recent bank statement reports a balance of $47,175. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bankâs monthly service charge was $25. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $4,100; no. 511, $9,400; and no. 521, $7,900. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.
2. Music-Is-Us has a portfolio of marketable securities that originally cost $20,000. As of December 31, the market value of these securities was $28,800. All short-term investments are classified as "available for sale."
3. During December, $6,100 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable led management to conclude that an allowance for doubtful accounts of $8,200 is needed at December 31, 2018.
4. The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,300. This amount is not considered significant relative to the total cost of inventory on hand.
5. At December 31, approximately $830 in office supplies remained on hand.
6. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2018. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
7. Depreciation expense related to the company's building and fixtures is $4,000 for the month ending December 31, 2018.
8. Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled âUnearned Customer Deposits.â As of December 31, $4,000 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.
9. Accrued income taxes payable for the entire year ending December 31, 2018, total $81,000. No income tax payments are due until early in 2019.
Please Prepare:
A Bank Reconciliation
Journal Entries
Adjusting Entries
