What does the disclosure principle require?
The disclosure principle requires disclosing the information regarding the procedure and methods adopted to prepare financial statements.
The disclosure principle is the governing rule for making financial statements. All the accounting standards are based on some principles. The accounting standards relating to inventories also require the disclosure principle to make informed decisions.
The disclosure principle is based on the requirement of making the useful and required information public to outsiders. Sometimes looking at the financial figures alone is not helpful in making the right decision. It is also equally important to get to know the methods and procedures adopted to reach that financial figure.
The disclosure principle fulfills this requirement by making it compulsory to disclose the required and enough information for making knowledgeable decisions
Question: Empire State Carpets’s books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by $8,000 and thatthe ending merchandise inventory for 2019 was overstated by $9,000. The ending merchandiseinventory at December 31, 2018, was correct.
Net Sales Revenue
Cost of Goods Sold:
Beginning Merchandise Inventory
Net cost of purchase
Cost of goods available for sale
Less: Ending Merchandise Inventory
Cost of goods sold
2. State whether each year’s net income—before your corrections—is understated oroverstated, and indicate the amount of the understatement or overstatement.
Question: Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ $ 9 each
8 Sale 8 units @ $ 22 each
14 Purchase 16 units @ $ 14 each
21 Sale 14 units @ $ 22 each
1. Compute the cost of goods sold, cost of ending merchandise inventory, and grossprofit using the FIFO inventory costing method.
Question: New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:
Net Sales Revenue$ 58,000
Cost of Goods Sold:
Beginning Merchandise Inventory$ 4,900
Net Cost of Purchases 32,500
Cost of Goods Available for Sale37,400
Less: Ending Merchandise Inventory 4,700
Cost of Goods Sold32,700
Gross Profit $ 25,300
1. Assume that the ending merchandise inventory was accidentally overstated by$1,800. What are the correct amounts for cost of goods sold and gross profit?
Question: Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.
The first month’s milk purchases and sales at its Freeport, Florida, location follow:
Nov. 2 Purchased 11 gallons @ $2.15 each
6 Purchased 2 gallons @ $2.80 each
8 Sold 6 gallons of milk to a customer
13 Purchased 3 gallons @ $2.85 each
14 Sold 4 gallons of milk to a customer
3. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the weighted-average inventory costing method. Round allamounts to the nearest cent.
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