Bienvenu Enterprises reported cost of goods sold for 2017 of $1,400,000 and retained earnings of $5,200,000 at December 31, 2017. Bienvenu later discovered that its ending inventories at December 31, 2016 and 2017, were overstated by$110,000 and $35,000, respectively. Determine the corrected amounts for 2017 cost of goods sold and December 31, 2017,retained earnings.
Corrected COGS and retained earnings are $1,325,000 and $5,275,000, respectively.
As the ending inventory for 2016 is overstated by $110,000, the opening inventory for 2017 would have the same effect.
The ending inventory for 2017 is overstated by $35,000.
As the COGS has been overstated, there would be an opposite effect on the retained earnings. Thus the retained earnings have been underestimated.
You are the vice president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2017. These schedulesappear below.
Sales Cost of Gross
($5 per unit) Goods Sold Margin
Schedule 1 $150,000 $124,900 $25,100
Schedule 2 150,000 129,400 20,600
The computation of cost of goods sold in each schedule is based on the following data.
Units per Unit Cost
Beginning inventory, January 1 10,000 $4.00 $40,000
Purchase, January 10 8,000 4.20 33,600
Purchase, January 30 6,000 4.25 25,500
Purchase, February 11 9,000 4.30 38,700
Purchase, March 17 11,000 4.40 48,400
Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from thesame set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on differentassumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared inthis sequence of cost flow assumptions.
Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the endinginventory under both cost flow assumptions.
Question: Where, if at all, should the following items be classified on a balance sheet?
(a) Goods out on approval to customers.
(b) Goods in transit that were recently purchased f.o.b. destination.
(c) Land held by a realty firm for sale.
(d) Raw materials.
(e) Goods received on consignment.
(f) Manufacturing supplies.
Question: In January 2017, Susquehanna Inc. requested and secured permission from the commissioner of the Internal Revenue Service to compute inventories under the last-in, first-out (LIFO) method and elected to determine inventory cost under the dollar-value LIFO method. Susquehanna Inc. satisfied the commissioner that cost could be accurately determined by use of an index number computed from a representative sample selected from the company’s single inventory pool.
(a) Why should inventories be included in (1) a balance sheet and (2) the computation of net income?
(b) The Internal Revenue Code allows some accountable events to be considered differently for income tax reporting purposes and financial accounting purposes, while other accountable events must be reported the same for both purposes. Discuss why it might be desirable to report some accountable events differently for financial accounting purposes than for income tax reporting purposes.
(c) Discuss the ways and conditions under which the FIFO and LIFO inventory costing methods produce different inventory valuations. Do not discuss procedures for computing inventory cost.
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