Question

In: Accounting

QUESTION 8 If a company overstates its ending inventory balance for 2017 by $10,000, and overstates...

QUESTION 8

If a company overstates its ending inventory balance for 2017 by $10,000, and overstates its ending inventory balance for 2016 by $5,000 what are the effects on its net income for 2017 and 2016?

A.

Effect on 2017 Net Income                       Effect on 2016 Net Income

Overstated by $15,000                             Overstated by $10,000

B.

Effect on 2017 Net Income                       Effect on 2016 Net Income

Understated by $5,000       Overstated by $10,000

C.

Effect on 2017 Net Income                       Effect on 2016 Net Income

Overstated by $5,000 Overstated by $5,000

D.

Effect on 2017 Net Income                       Effect on 2016 Net Income

Overstated by $10,000 Overstated by $5,000

1 points   

QUESTION 9

Which of these is not an acceptable inventory costing method under IFRS?

A.

  FIFO

B.

  LIFO

C.

  Specific Identification

D.

  Average cost

1 points   

QUESTION 10

A company lost all but $50 of its inventory in a fire on Feb. 22, 2017. The company’s financial records are listed below:

2015                       2016                   

Net Sales                     10,000                      12,300                   

COGS                           6,500                        7,995                   

       Gross Profit                  3,500                        4,305                   

       Operating Exp.             2,000                        2,500                   

       Net Income                   1,500                        1,805                   

              For 2017 the company’s records showed beginning inventory of $350, purchases of $500 and purchase returns of $90.  

        Net sales for the first part of the year totaled $1,000.

    

      Determine the amount of inventory destroyed in the fire. (You must first calculate the company’s historical gross profit percentage.)

A.

  $240

B.

  $360

C.

$ 60  

D.

  $150        

E.

  $110

Solutions

Expert Solution

Question no 8:

Generally, if closing inventory increased then profit may be increased and opening inventory increased then profit may be decreased.

In our given problem, company overstates its ending inventory balance for 2017 by $10,000, and overstates its ending inventory balance for 2016 by $5,000. That is 2017 profit inceased by $10,000 (due to overstated its 2017 ending inventory) and simultaneously decreased by $5,000 (due to overstated its 2016 ending inventory, ie., the opening inventory of 2017)

So, in the year 2017, profit $10,000 increased $5,000 decreased. Finally it leads to overstated of profit by $5,000.

Same way in 2016, the profit increased by $5,000.

So, the anwer C is correct ( Effect on 2017 Net Income Overstated by $5,000 and Effect on 2016 Net Income Overstated by $5,000).

Question no 9:

The Last-In-First-Out (LIFO) method of inventory valuation , while permitted under the US Generally Accepted Accounting Principles (GAAP), is prohibited under the International Financial Reporting Standards (IFRS). As IFRS rules are based on principles rather than exact guidelines, usage of LIFO is prohibited due to potential distortions it may have on a company’s profitability and financial statements. In principle, LIFO may create a distortion to net income when prices are rising (inflation), LIFO inventory amounts are based on outdated and obsolete numbers, and LIFO liquidations may provide unscrupulous managers with the means to artificially inflate earnings.

Remaining FIFO, Specific identification and Average cost methods are acceptable by the IFRS

The answer is B.

Question no 10:

2015 Gross profit ratio = gross profit/net sales *100 = 6,500/10,000*100 = 65%

2016 Gross profit ratio = gross profit/net sales*100 = 7,995/12,300*100 =65%

So the Gross profit ratio is 65%

Calculation of amount destroyed in fire as on feb,22 , 2017:

2017 net sales $1,000

Therefore cost of Goods Sold =1000*65/100 =$650

Total value of inventory available as on 22 feb,2017=

{(Opening inventory+purchase-Purchase retuned)= ($350+$500-$90) =$760}

So value of goods lost in fire = $760- $650 =$110

The answer is E.


Related Solutions

Question: What is the ending inventory balance? Softbyte Inc. Balance Sheet December 31, 2017 Assets Cash                        &nbsp
Question: What is the ending inventory balance? Softbyte Inc. Balance Sheet December 31, 2017 Assets Cash                                                                                                    $500,000 Accounts Receivable                                                                        700,000                                 Inventory                                                                                           300,000 Property, Plant & Equipment                            900,000 Accumulated Depreciation                              (100,000)              800,000 Total Assets                                                                                    $2,300,000 Liabilities & Equity Accounts Payable                                                                          $300,000 Notes Payable                                                                                  1,000,000 Common Stock                                                                                  500,000 Retained Earnings                                                                            500,000 Total Liabilities & Equity                                                        $2,300,000 Instructions: Open the balances in the ledger accounts. Post the journal entries to...
Simmons Company has the following information about its ending inventory. It values its inventory on an...
Simmons Company has the following information about its ending inventory. It values its inventory on an individual-item basis. Determine the value of the ending inventory. Show your work. Item Quantity Cost Estimated Selling Price Cost to Complete and Sell A 700 $2.25 $3.25 $1.40 B 500 3.00 3.90 0.80 C 3,000 1.80 2.50 1.20 D 1,000 4.70 6.00 1.50
1.) If budgeted beginning inventory is $8,800, budgeted ending inventory is $10,000, and budgeted cost of...
1.) If budgeted beginning inventory is $8,800, budgeted ending inventory is $10,000, and budgeted cost of goods sold is $10,760, budgeted purchases should be: $1,960 $760 $11,960 $1,200 $9,560 2.) Use the following information to determine the ending cash balance to be reported on the month ended June 30 cash budget. a. Beginning cash balance on June 1, $94,900. b. Cash receipts from sales, $417,500. c. Budgeted cash disbursements for purchases, $272,500. d. Budgeted cash disbursements for salaries, $95,900. e....
The XYZ Company uses the conventional retail inventory method to estimate ending inventory for its monthly...
The XYZ Company uses the conventional retail inventory method to estimate ending inventory for its monthly financial statements and presents the following data for one department for February 2020. Present a schedule that shows the ending inventory at cost and highlight that cell with color and a thick outside border. Label each column and row clearly so your workpaper can be used by other people in Marquette's accounting department. Present the cost to retail percentage as a percentage with two...
Blossom Company is trying to determine the value of its ending inventory as at February 28,...
Blossom Company is trying to determine the value of its ending inventory as at February 28, 2017, the company’s year end. The accountant counted everything that was in the warehouse as at February 28, which resulted in an ending inventory valuation of $61,000. However, he was not sure how to treat the following transactions, so he did not include them in inventory. For each of the below transactions, specify whether the item should be included in ending inventory, and if...
Cullumber Company is trying to determine the value of its ending inventory as at February 28,...
Cullumber Company is trying to determine the value of its ending inventory as at February 28, 2017, the company’s year end. The accountant counted everything that was in the warehouse as at February 28, which resulted in an ending inventory valuation of $69,000. However, he was not sure how to treat the following transactions, so he did not include them in inventory. For each of the below transactions, specify whether the item should be included in ending inventory, and if...
On March 31 a company needed to estimate its ending inventory to prepare its first quarter...
On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $5,900 Net sales: $88,000 Net purchases: $86,000 The company's gross margin ratio is 20%. Using the gross profit method, the estimated ending inventory value would be:
Determining Merchandise to be Included or Excluded from Ending Inventory The unadjusted inventory balance of Sara...
Determining Merchandise to be Included or Excluded from Ending Inventory The unadjusted inventory balance of Sara Ann Corp. is $500,000 on December 31, 2020, based on a physical inventory count. The following items must be considered before the inventory valuation is finalized. a. On December 31, the physical inventory excluded $500 of merchandise inventory shipped to Sara Ann Corp. from a vendor f.o.b. destination that arrived on January 1, 2021. b. On December 31, the physical inventory included $18,000 of...
Johnson Company calculates its allowance for uncollectible accounts as 20% of its ending balance in gross...
Johnson Company calculates its allowance for uncollectible accounts as 20% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $29,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $483,300, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 53,200. Required: 1. What was the balance in...
Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross...
Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $24,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $400,100, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 43,900. Required: 1. What was the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT