Ch08 - Chapter 8 EXERCISES E82 Reporting and Interpreting...

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Chapter 8 Reporting and Interpreting Cost of Goods Sold and Inventory EXERCISES E8–2 Item Amount Explanation Ending inventory (physical count on December 31, 2008) $50,00 0 Per physical inventory a. Goods purchased and in transit + 300 Goods purchased and in transit, F.O.B. shipping point, are owned by the purchaser. b. Samples out on trial to customer + 400 Samples held by a customer on trial are still owned by the vendor; no sale or transfer of ownership has occurred. c. Goods in transit to customer Goods shipped to customers, F.O.B. shipping point, are owned by the customer because ownership passed when they were delivered to the transportation company. The inventory correctly excluded these items. d. Goods sold and in transit + 1,000 Goods sold and in transit, F.O.B. destination, are owned by the seller until they reach destination. Correct inventory, December 31, 2008 $51,70 0
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E8–3 (Underscore for missing amounts only.) Cas e Sales Revenue Beg. Inven- tory Pur- chases Total Avail- able Ending Inventory Cost of Goods Sold Gross profit Operating Expenses Pretax Income or (Loss) A $ 650 $100 $700 $800 $500 $300 $350 200 $150 B 900 200 800 1,000 250 750 150 150 0 C 600 150 350 500 300 200 400 100 300 D 800 100 600 700 250 450 350 250 100 E 1,000 200 900 1,100 600 500 500 550 (50) E8–9 Req. 1 The $400 understatement of ending inventory produced pretax income amounts that were incorrect by $400 for each quarter. However, the effect on pretax income for each quarter was opposite (i.e., the first quarter pretax income was understated by $400, and in the second quarter it was overstated by $400). This self-correcting effect produces a correct combined income for the two quarters. Req. 2 The error caused the pretax income for each quarter to be incorrect [see (1) above]; therefore, it the EPS for the first quarter was understated, and the EPS for the second quarter was overstated.
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Req. 3 First Quarter 2008 Second Quarter 2008 Sales revenue. ......................................... $17,000 $18,000 Cost of goods sold: Beginning inventory. .......................... $3,000 $ 4,400 Purchases. ......................................... 7,000 12,000 Cost of goods available for sale. .. 10,000 16,400 Ending inventory. ............................... 4,400 9,000 Cost of goods sold. ....................... 5,600 7,400 Gross profit ........................................... 11,400 10,600 Expenses ........................................... 5,000 6,000 Pretax income. ......................................... $6,400 $4,600 Req. 4 2nd Quarter 2008 1st Quarter 2008 Incorrect Amount (if any) Correct Amount Error Amount (if any) Incorrect Amount (if any) Correct Amount Error Amount (if any) Beginning inventory $4,000 $4,400 $400 under $3,000 No error Ending inventory 9,000 No error $4,000 4,400 $400 under Cost of goods sold 7,000 7,400 400 under 6,000 5,600 400 over Gross profit 11,000 10,600 400 over 11,000 11,400 400 under Pretax income 7,000 4,600 400 over 6,000 6,400 400 under E8–11
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Req. 1
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Ch08 - Chapter 8 EXERCISES E82 Reporting and Interpreting...

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