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Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
Edition 11ISBN: 978-1259535314 Exercise 32
Effects of inventory errors Following are condensed income statements for Uncle Bill's Home Improvement Center for the years ended December 31, 2017 and 2016:
Uncle Bill was concerned about the operating results for 2017 and asked his recently hired accountant, "If sales increased in 2017, why was net income less than half of what it was in 2016?" In February of 2018, Uncle Bill got his answer: "The ending inventory reported in 2016 was overstated by $17,500 for merchandise that we were holding on consignment on behalf of Kirk's Servistar. We still keep some of their appliances in stock, but the value of these items was not included in the 2017 inventory count because we don't own them."
a. Recast the 2016 and 2017 income statements to take into account the correction of the 2016 ending inventory error.
b. Calculate the combined net income for 2016 and 2017 before and after the correction of the error. Explain to Uncle Bill why the error was corrected in 2017 before it was actually discovered in 2018.
c. What effect, if any, will the error have on net income and stockholders' equity in 2018?
Uncle Bill was concerned about the operating results for 2017 and asked his recently hired accountant, "If sales increased in 2017, why was net income less than half of what it was in 2016?" In February of 2018, Uncle Bill got his answer: "The ending inventory reported in 2016 was overstated by $17,500 for merchandise that we were holding on consignment on behalf of Kirk's Servistar. We still keep some of their appliances in stock, but the value of these items was not included in the 2017 inventory count because we don't own them."
a. Recast the 2016 and 2017 income statements to take into account the correction of the 2016 ending inventory error.
b. Calculate the combined net income for 2016 and 2017 before and after the correction of the error. Explain to Uncle Bill why the error was corrected in 2017 before it was actually discovered in 2018.
c. What effect, if any, will the error have on net income and stockholders' equity in 2018?
Explanation
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(a)If merchandise inventory is overstate...
Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall
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