Below is information relating to Knoclew Inc., a subsidiary of a U.S. publicly traded manufacturer of murder
Question:
Beginning-of-year finished goods inventory€¦€¦€¦€¦€¦€¦€¦€¦20,000 units
Units finished during Year 1€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦..200,000 units
End-of-year finished goods inventory€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦.15,000 units
Beginning-of-year work-in-process (in equivalent units*)€¦€¦.10,000 units
Ending work-in-process (in equivalent units*)€¦€¦€¦€¦€¦€¦...10,000 units
a. One of Knoclew€™s products became obsolete and worthless during Year 1, hut the inventory write-down did not occur until Year 2. The cost of this inventory was $25,000.
b. In the Year 1 closing inventory count, employees improperly included 1,000 units of finished goods that had already been sold to customers. These units had a cost of $8,000 under LIFO.
c. An invoice for $15,000 of material received and used in production arrived after the year-end. Neither the purchase nor the accounts payable was recorded. However, the amount of raw materials in ending inventory was correct based on the inventory count.
d. IN Year 1, Knoclew incurred the following expenditures:
Factory labour€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦.$1,000,000
Materials used in manufacturing€¦€¦€¦€¦€¦€¦€¦€¦€¦..800,000
Variable overhead€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦300.000
Subtotal€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦2,100,000
Transportation cost of raw materials€¦€¦€¦€¦€¦€¦€¦...200,000
Factory' depreciation€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦..700,000
Salary of production vice-president€¦€¦€¦€¦€¦€¦€¦€¦100,000
Salary' of marketing vice-president€¦€¦€¦€¦€¦€¦€¦€¦120,000
Advertising cost for new game€¦€¦€¦€¦€¦€¦€¦€¦€¦..200.000
€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦€¦...$3,420,000
Knoclew€™s accountants debited only $2,100,000 into the inventory (work-in-process) account. The remainder was expensed as period costs.
Required:
For each of the above independent scenarios (a) through (d), indicate in the following table the effect of the accounting errors on the books of Knoclew Inc. Specifically, identify the amount and direction of over- or understatement of inventory' and income for Year 1 and Year 2. If an account requires no adjustment, indicate that the account is €œcorrect.€
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The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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Year 1 Year 2 Scenario Inventory Income Inventory Income a 25000 overstated 25000 overstated correct ...View the full answer
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