solution to the inventory problem

solution to the inventory problem - 20X2 BEG inventory End...

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20X2 20X3 BEG inventory $200 $300 End Inventory $300 $50 Purchase $700 0 Sales $700 $350
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Solution to in-class problem for Inventory 1) Goods bought in 20X2 were included in December 31 inventory, but purchases and the liability was not recorded until early 20x3. ( I make up some numbers just for the first error below to show how it works): What the firm should have done during 2002 when they made the last purchase on account is: Dr: Purchase: $50 Cr: A/P: $50 How was COGS affected for 2002 ? (“0” indicates the balance was correct, “ + indicates overstatements; “ -- “indicates understatements) BEG Inventory + Purchase -- COGS (plug- in) = End Inventory What should have been $200 $700 $600 $300
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recorded What was recorded $200 $650 $550 $300 Direction of impact 0 -- -- 0 Explanation No error indicated Failed to record $50 in 20X2 Plug-in number No error indicated Impact on the following items: Assets (Inv) Liability (A/P) Equity (Retained Earnings) Net Income (=sales-COGS) What should have been recorded $300 $700 $100 $100 What was recorded $300 $650 $150 $150 Direction of impact 0 -- + + Explanation No error indicated for end inventory Did not record $50 A/P NI was understated, which goes to RE COGS understated How was COGS affected for 2003 ? BEG + Purchase -- COGS (plug- = End
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Inventory in) Inventory What should have been recorded $300 0 $250 $50 What was recorded $300 $50 $300 $50 Direction of impact 0 + + 0 Explanation End balance from 2002 Recorded the $50 purchase in 20X2 this year Plug-in number No error indicated Impact on the following items: Assets (Inv) Liability (A/P) Equity (Retained Earnings) Net Income (=sales-COGS) What should have been recorded $50 $700 $200 $100 What was recorded
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solution to the inventory problem - 20X2 BEG inventory End...

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