AP6–8 Eddie’s Galleria sells billiard tables. The company uses a periodic invent
ID: 2434266 • Letter: A
Question
AP6–8 Eddie’s Galleria sells billiard tables. The company uses a periodic inventory system to account for inventory and has the following purchases and sales for 2010. date transaction units cost per unit total cost Jan. 1 begining inventory 150 540 81000 Mar. 8 purchase 120 570 68400 Aug.22 purchase 100 600 60000 Oct. 29 purchase 80 640 51200 total 450 260600
Eddie is worried about the company’s financial performance. He has noticed an increase in the purchase cost of billiard tables, but at the same time, competition from other billiard table stores and other entertainment choices have prevented him from increasing the sales price. Eddie is worried that if the company’s profitability is too low, stockholders will demand he be replaced. Eddie does not want to lose his job. Since 60 of the 400 billiard tables sold have not yet been picked up by the customers as of December 31, 2010, Eddie decides to include these tables in ending inventory. He appropriately includes the sale of these 60 tables as part of total revenues in 2010.
Required: answer to the following questions
1.What amount will Eddie calculate for ending inventory and cost of goods sold using FIFO, assuming he erroneously reports that a total of 110 tables remain in ending inventory?
2.What amount would Eddie calculate for cost of goods sold using FIFO if he correctly reports that only 50 tables remain in ending inventory?
3.What effect will the inventory error have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2010?
4.Assuming that ending inventory is correctly counted at the end of 2011, what effect will the inventory error in 2010 have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2011?
Eddie is worried about the company’s financial performance. He has noticed an increase in the purchase cost of billiard tables, but at the same time, competition from other billiard table stores and other entertainment choices have prevented him from increasing the sales price. Eddie is worried that if the company’s profitability is too low, stockholders will demand he be replaced. Eddie does not want to lose his job. Since 60 of the 400 billiard tables sold have not yet been picked up by the customers as of December 31, 2010, Eddie decides to include these tables in ending inventory. He appropriately includes the sale of these 60 tables as part of total revenues in 2010.
Required: answer to the following questions
1.What amount will Eddie calculate for ending inventory and cost of goods sold using FIFO, assuming he erroneously reports that a total of 110 tables remain in ending inventory?
2.What amount would Eddie calculate for cost of goods sold using FIFO if he correctly reports that only 50 tables remain in ending inventory?
3.What effect will the inventory error have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2010?
4.Assuming that ending inventory is correctly counted at the end of 2011, what effect will the inventory error in 2010 have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2011?
date transaction units cost per unit total cost Jan. 1 begining inventory 150 540 81000 Mar. 8 purchase 120 570 68400 Aug.22 purchase 100 600 60000 Oct. 29 purchase 80 640 51200
Explanation / Answer
1.What amount will Eddie calculate for ending inventory and cost of goods sold using FIFO, assuming he erroneously reports that a total of 110 tables remain in ending inventory? $69,200, you would take the cost of the last 110 units. 80x640= $51,200 then add that to the other 30 units. 30x600= $18,000 which gives you $69,200.
2.What amount would Eddie calculate for cost of goods sold using FIFO if he correctly reports that only 50 tables remain in ending inventory? $228,600. Take the total cost minus the cost of what is left in inventory. $260,600-(50x640)= $228,6000
3.What effect will the inventory error have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2010?
A) It will over stat ending inventory because it will show 110 units when 60 of those have already been sold, just not picked up.
B) It will over stat, because he has recorded the sale of the 60 units and is still recording them in the inventory.
C) None, if he recorded the sale of the 60 units properly then the cost of goods sold account should have been posted correctly. However it is not very clear what at point he started recording accurately.
D) It will over stat, same as B.
4.Assuming that ending inventory is correctly counted at the end of 2011, what effect will the inventory error in 2010 have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2011?
The opposite of the answers above because they will have to be corrected.
I know the first two are right but the last two i think the wording on the question should be a little more clear. sorry i can't give you a fore sure on all of them.