Question

The Gymboree Corporation is one of the largest children’s apparel specialty retailers in North America. Have students, individually or in groups, go to EDGAR at www.sec.gov.

A. Find your way to the financial statements and notes for the most recent fiscal year.

B.    Identify and explain the method(s) used to value inventories.

C.    Assume that in the most recent fiscal year, the company discovered that last year's ending inventory was overvalued by $10 million due to a mathematical error and:

1.    Describe the accounting treatment of the error.

2.    Determine the effect of the error on income before taxes for the current and prior years.

D. Assume that the company decided to switch its inventory method to FIFO. Explain the accounting treatment for the change.

Answer 1

Dear Sir,

While searching financials statements for company The Gymboree Corporation on website "www.sec.gov", I found the statements for the quarterly period ended January 28, 2017 (Form 10Q).

While studing the statement I observers, below answeres:-

B. For Inventory vaulation company is useing "Weighted-Average Method". This method is used to assign the average-cost of production to a product. In most companies it is impossible to assign s specific cost to a product, and very dificult to manage the inventory on FIFO and LIFO inventory method, then company used this method. When using tweighted average method , devide the cost of goods avialable for sale, which calculates the weighted-average cost per unit.

C.Overvalued inventory records shows more inventory stock is held as per mentioned in financials statements. And according this case inventory was overvalued by $10 milion due to mathematical error, so followings are the accounting treatment for this error:-

1: An adjustment entry needs to remove the surplus stock, which wil in turn to reduces the closing stock to the correct level annd increases the cost of goods sold.

Cost of Goods sold A/c Dr. $ 10,00,000

The Closing Stock Cr. $10,00,000

(Being adjustment entry made for overvalued stock in financials statements)

2.As per Financials statement found on website, company is in loss $335827, and after this correction loss will increase by $ 10 milion.

D. If company will go to the Fifo method for inventory vavulation, then company's Profit OR Loss will change as per the change in inventory. To calculate actual value of inventory, by FIFO method all inventory movement is required. An adjustment enty will be done for SURPLUS and LESS inventoy.