Chapter 7 pt 2 Flashcards
Risers Inc. reported total assets of $2,400,000 and net income of $320,000 for the current year. Risers determined that inventory was overstated by $24,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?
$2,400,000 and $344,000
Aber Company manufactures one product. On December 31, 2024, Aber adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $900,000 (base year) . Inventory data are as follows:
Year FIFO Inv Index 2025 $1,260,000 1.05 2026 1,840,000 1.15 2027 1,900,000 1.25
Instructions
Compute the inventory at December 31, 2025, 2026, and 2027, using the dollar-value LIFO method for each year.
2025: $1,215,000
2026: $1,675,000
2027: $1,583,000
Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2025 was $280,000. The balance in the same account at the end of 2026 is $420,000. Black’s Cost of Goods Sold account has a balance of $2,100,000 from sales transactions recorded during 2026. What amount should Black report as Cost of Goods Sold in the 2026 income statement?
$2,240,000
If the beginning inventory for 2025 is overstated, the effects of this error on cost of goods sold for 2025, net income for 2025, and assets at December 31, 2026, respectively, are
overstatement, understatement, no effect.
RF Company had a January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $430,080, and the price index was 112.
What would be reported for RF Company’s ending inventory?
$394,080
Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2026 and 2025 contained errors as follows:
In 2026 Ending inventory was $9,000 overstated and Depreciation expense was $6,000 understated
In 2025 Ending inventory was $24,000 overstated and Depreciation expense was $18,000 overstated
Assume that the proper correcting entries were made at December 31, 2025. By how much will 2026 income before taxes be overstated or understated?
$15,000 overstated
Farr Co. adopted the dollar-value LIFO inventory method on December 31, 2025. Farr’s entire inventory constitutes a single pool. On December 31, 2025, the inventory was $960,000 under the dollar-value LIFO method. Inventory data for 2026 are as follows:
12/31/26 inventory at year-end prices $1,320,000
Relevant price index at year-end (base year 2025) 110
Using dollar value LIFO, Farr’s inventory at December 31, 2026 is
$1,224,000
1320000 / 1.1 = 1200000
1200000 - 960000 = 240000
960000 + (240000 * 1.1) = 1224000
What is the effect of a $50,000 overstatement of last year’s inventory on current years ending retained earning balance?
No effect
Milford Company had 600 units of “Tank” in its inventory at a cost of $6 each. It purchased 900 more units of “Tank” for $9 each. Milford then sold 1,050 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by
$450
[cost difference] * [excess units sold over quantity of most recent]
($3) * (150)
or
($3) * (1,050 - 900)
Rework:
Wand Company has had issues counting its inventory over the last several years. Assuming that the 2022 inventory was correct, the following information was gathered.
2023 Net Income $124,000 Inventory was Understated by $16,000
2024 Net Income $186,000 Inventory was Understated by $4,000
2025 Net Income $146,000 Inventory was Correct
2026 Net Income $138,000 Inventory was Overstated by $12,000
2027 Net Income $193,000 Inventory was Overstated by $8,000
Instructions:
Prepare a schedule showing the adjusted net income figure for each year after considering the inventory errors. Ignore the effect of income taxes.
Beginning with OS: add amount
Beginning with US: subtract amount
Ending with OS: subtract amount
Ending with US: add amount
