Assessing whether an accounting error is material is addressed in FASB ASC paragraph 250-10-S55-1 (also paragraph 250-10-S99-1) and in FASB Concepts Statement No. 2. In concept 2, FASB states: The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.

In the Codification, FASB states that materiality cannot be reduced to a numerical formula.

The SEC argues that evaluation of materiality requires a registrant and its auditor to consider all relevant circumstances and believes that qualitative factors may cause misstatements of relatively small amounts to be material. The SEC lists several considerations that may cause a small misstatement to be material. Some of these include whether the misstatement hides a failure to meet analysts' consensus expectations or whether the misstatement changes a loss into income. Furthermore, the SEC states that in determining whether multiple misstatements cause the financial statements to be materially misstated, registrants and its auditors should consider each misstatement separately and in the aggregate.

Green Mountain Coffee Roasters announced in an 8-K that the SEC was conducting an in formal investigation of its financial statements. Initially, Green Mountain determined that the errors (primarily from failure to eliminate intercompany inventory correctly) were immaterial, but later decided to restate prior statements. The first error resulted in an overstatement of ending inventory in the first three quarters of 2010 or $5.792 million. A second error resulted in over-eliminating intercompany sales of $15.200 million.

Also, included in the second-quarter earnings ending on March 28, 2010, were acquisition-related expenses of $5 million, or $3,070 after tax. Earnings for the second quarter as reported were $24.702 million and the number of shares used for diluted earnings per share were 45.943 million. Diluted EPS is $0.54 per share. Second-quarter earnings, after the re statement, were $24.108 million.

Required:

A. Prepare journal entries to correct the two errors.

B. Generally, analysts forecast earnings excluding certain expenses. In the second quarter, the analysts' forecast of earnings, excluding the acquisition-related expenses, was $0.60 per share. Did Green Mountain beat the analysts' expectations of earnings before and after the restatement?