Chapter 8 – Inventory Error
QUESTION
Buy More Co. reported the following amounts in its financial statements:
Financial Statement for Year Ended Dec. 31
2015 2016 2017
(a) Goods available for sale $ 1,250,000 $ 1,105,000 $ 975,000
(b) Cost of Goods Sold 358,000 435,000 382,000
(c) Net Income 65,000 87,000 74,000
(d) Total Current Assets 855,000 965,000 880,000
(e) Shareholders' Equity 970,000 1,150,000 1,012,000
During 2017, the following errors were discovered:
1. Inventory counting errors as follows:
(a) Inventory on Dec. 31, 2014: overstated $30,000
(b) Inventory on Dec. 31, 2015: overstated $50,000
(c) Inventory on Dec. 31, 2016: understated $20,000
2. $32,000 of merchandise inventory purchased on December 23, 2017 was shipped
FOB shipping point and received on January 6, 2018. It was not included in the
inventory on December 31, 2017 since it was not physically in the warehouse
during the inventory count.
3. A credit memorandum for $2,000 which represents a price adjustment for
damaged goods was received on December 29 th but was not recorded until
January 3, 2018.
Required:
For each of the preceding financial statement items – (a), (b), (c), and (d) – prepare a
schedule and show the adjustments that would have been necessary to correct the
reported amounts.
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Chapter 8 – Inventory Error
QUESTION
Financial Statement for Year Ended Dec. 31
(a) Goods available for sale 2015 2016 2017
Reported
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Corrected
(b) Cost of Goods Sold 2015 2016 2017
Reported
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Corrected
(c) Net Income 2015 2016 2017
Reported
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Corrected
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Chapter 8 – Inventory Error
(d) Total Current Assets 2015 2016 2017
Reported
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Corrected
(e) Shareholders' Equity 2015 2016 2017
Reported
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Adjustments:
Corrected
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