Question

In: Accounting

Determine the effect on the cost of goods sold, total assets, and gross margin for 2013...

Determine the effect on the cost of goods sold, total assets, and gross margin for 2013 and 2014 if the following inventory errors are not corrected. Indicate your answer with (+) for overstated, (-) for understated, and (0) for no effect.

a. Beginning inventory for 2013 is understated b. Ending inventory for 2013 is overstated

Effect in 2013 on

Cost of Goods Sold ｜Total Assets｜ Gross Margin

Effect in 2014 on

Cost of Goods Sold ｜Total Assets ｜Gross Margin

Cough FX Limited reports the following shareholders' equity as of December 31, 2013:

Preferred shares, $5.00, authorized 100,000 shares, issued 80,000 shares $4,400,000

Common shares, authorized 200,000 shares, issued 150,000 shares, 146,000 outstanding $2,190,000

Retained earnings $3,400,000

$9,990,000

Determine the following:

a. Assume the board of directors authorizes a 2-for-1 split on the common shares. Calculate the number of shares outstanding after the split and the book value of both classes of shares.

b. Assume the board of directors authorizes a 15% stock dividend on the common shares after the stock split. The current selling price of the common shares is $9. Prepare the journal entry to distribute the stock dividend.

Solutions

Expert Solution

Effect in 2013 on

Cost of Goods Sold - Understated (Since COGS = Opening Inventory + Purchases - Ending Inventory)

Total Assets - Overstated (Since ending inventory overstated)

Gross Margin - Overstated (Since COGS is understated)

Effect in 2014 on

Cost of Goods Sold - Overstated (Since COGS = Opening Inventory + Purchases - Ending Inventory)

Total Assets - Understated (Since opening inventory overstated)

Gross Margin - Understated (Since COGS is overstated)

Question 2

Outstanding Common Shares = 146,000

2:1 split means two stock for one held. Vaue of outstanding share not effected only number change.

Thus new authorised common shares = 146,000 x 2 = 292,000 common shares with value $2,190,000

Preference share = 80,000 shares with value $4,400,000

Dividend payable = $2,190,000 x 15% = $328,500

Reatined Earnings $328,500

Dividends Payable $328,500

Cash $328,500

ekkarill92 answered 1 year ago

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