On December 30, 2018, XYZ Ltd. purchased inventory, valued at $22,000, for a special “going out...

On December 30, 2018, XYZ Ltd. purchased inventory, valued at $22,000, for a special “going out of business sale” for $16,000 cash. The accountant recorded the inventory for $22,000 and the $6,000 difference as a gain on the 2018 income statement.

What is the financial accounting issue? State as an issue statement/question as done in class.
What are the implications/impact of the issue to the financial statements?
What is your recommendation for the financial accounting issue?
Why did you recommend this?

- Support your answer using GAAP conceptual framework principles and

- APPLYING to the XYZ’s situation.

Expert Solution

The treatment done by the accountant is incorrect.

Goods should be recorded at the cost incurred by the buyer and at its market price.

Further at the end of accounting year inventory should be valued at its cost or net realizable value which ever is lower.

Ans to a- The financial accounting issue here is the incorrect recording of inventories in books. Both inventory and profit is inflated and this is not correct as per GAAP.

Ans to b- The financial implication of this error is: Inventory and profit both are inflated by $6,000. Inventory is overvalued by $6000 which will impact the current ratio of the company and will not provide the correct picture to stake holders.

Ans to c- My recommendation is to book inventory at its cost that is $ 16,000 and remove the notional gain of $6,000 from books.

Ans to d- My recommendation is as per the guidelines of GAAP. Generally accepted accounting principles (GAAP) require that all type of inventory are to be stated and valued using either the cost or the market value method — whichever is lower.

ekkarill92 answered 1 year ago

Basie Ltd purchased a building at a cost of $1,200,000 on 30 June 2018. The building...

Basie Ltd purchased a building at a cost of $1,200,000 on 30 June 2018. The building is depreciated on a straight-line basis over 10 years with zero residual value. Basie Ltd values the building using the Revaluation (Fair Value) Model. On 30 June 2019, Basie Ltd revalued the building to its fair value of $1,350,000. a) Provide the journal entries to record the revaluation of the building on 30 June 2019. Show all workings necessary to determine your answer.

Causwell Company began 2018 with 22,000 units of inventory on hand. The cost of each unit...

Causwell Company began 2018 with 22,000 units of inventory on hand. The cost of each unit was $6.00. During 2018 an additional 42,000 units were purchased at a single unit cost, and 32,000 units remained on hand at the end of 2018 (32,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $225,600. The company is interested in determining what cost of goods sold would...

XYZ Company recorded the following information related to their inventory accounts for 2018: January 1, 2018...

XYZ Company recorded the following information related to their inventory accounts for 2018: January 1, 2018 December 31, 2018 Direct materials 10,000 17,000 Work in process 11,000 ? Finished goods 16,000 9,000 Additional information is as follows: Direct materials purchased .......... $19,000 Direct labor ........................ 15,000 Actual manufacturing overhead ....... 16,000 Applied manufacturing overhead ...... 14,000 Net income .......................... 20,000 S&A expenses ........................ 30,000 Sales revenue ....................... 90,000 Calculate the work in process inventory balance on December 31.

Find the cash conversion cycle for XYZ in 2018. If the industry averages are 30 days...

Find the cash conversion cycle for XYZ in 2018. If the industry averages are 30 days for sales to cash, 75 days for inventory to sales, and 30 days for purchase to payment, where is XYZ performing better or worse than the industry? How does the XYZ cash conversion cycle compare to the industry? Should XYZ address any or all of these differences and why? Financial Statements for XYZ Corp. Balance Sheet for Period Ending December 31. Assets 2017 2018...

on december 31 2016, p226 ltd purchased bonds of cz775 ltd. the bonds mature at a...

on december 31 2016, p226 ltd purchased bonds of cz775 ltd. the bonds mature at a value of 5,000,000. The stated interest is 3%. Interest paid each june 30 and December 31. The bonds were purchased to yield 3.4%. The bond will be accounted foras FVTPL and p226 follows IFRS 9. a) What is the price of the Bond b) Provide the 2017 Journal entries for June 30 and Dec 31 for P226. Use the net method and the standard...

The balance sheets of E Ltd. and J Ltd. on December 30, Year 6, were as...

The balance sheets of E Ltd. and J Ltd. on December 30, Year 6, were as follows: E Ltd. J Ltd. Cash and receivables $ 96,850 $ 21,200 Inventory 58,700 9,850 Plant assets (net) 231,400 72,200 Intangible assets 24,850 7,700 $ 411,800 $ 110,950 Current liabilities $ 64,700 $ 30,100 Long-term debt 99,200 45,200 Common shares 156,400 46,600 Retained earnings (deficit) 91,500 (10,950 ) $ 411,800 $ 110,950 On December 31, Year 6, E Ltd. issued 525 shares, with a...

The following statement of financial position relates to XYZ Ltd for the years ending 30 June...

The following statement of financial position relates to XYZ Ltd for the years ending 30 June 2019 and 30 June 2020. XYZ Ltd Statement of Financial Position As at 30 June 2020 2019 Cash at Bank $ 43,000 $ 42,000 Accounts Receivable 34,500 96,000 Inventory 113,500 124,000 Land 45,000 62,500 Buildings 265,000 137,500 Accumulated depreciation – Buildings (100,000) (85,000) Plant & Equipment 40,000 40,000 Accumulated depreciation – Plant & Equipment (10,000) (5,000) 431,000 412,000 Accounts Payable 67,000 60,500 Interest...

On 1 january 2018, Abc Co purchased assets of XYZ Co at auction for $1,560,000. An...

On 1 january 2018, Abc Co purchased assets of XYZ Co at auction for $1,560,000. An independent appraisal of the fair value of the assets acquired is listed below: Land $171,600 Building $514, 800 Equipment $600,000 Inventories $429,000 On 1 september 2018, ABC Co exchanged land and cash of $8000 for a plant. The land had a book value of $55,000 and a fair value of $60,000. The exchange has commercial susbtance. On 31 November 2018, ABC co sold equipment...

Question 1: The following information and ratios of XYZ Ltd related to the year ended December...

Question 1: The following information and ratios of XYZ Ltd related to the year ended December 31, 2019. 1. Accounting Information Gross Profit 15% of Sales Net profit 8% of Sales Inventory to sales 5% Average collection Period 60days All Sales on Credit 2. Financial Ratios Fixed Assets to Sales 33.3% Fixed Assets to Current Assets 118% Current ratio 2x Long-term loans to current liabilities 67% Capital to Retained earnings 25% If the value of fixed assets as of December...

XYZ Company is a startup company, and it has purchased inventory as follows: DATE QUANTITY PRICE...

XYZ Company is a startup company, and it has purchased inventory as follows: DATE QUANTITY PRICE 7/1/14 1000 $1.05 8/1/14 500 $1.10 9/1/14 800 $1.00 10/1/14 1500 $.90 11/1/14 2500 $1.02 12/1/14 750 $1.15 Assume you have sold 2,250 units in 2014. Given that fact, how much would inventory be valued on the balance sheet under the following methods and how much Cost of Goods Sold would be recognized as well? LIFO Method FIFO Method Average Cost Method

Question