AEI purchased inventory whenever the price was extremely low during the year and had a substantial amount of inventory on hand at year-end.

The inventory price has increased substantially between the time of purchase and at year-end. 

The accountant at AEI recorded the following journal at year-end to reflect the increase in value of inventory that was still on hand and not yet sold to customers:

DR. Inventory           $120,000 

CR. Gain on Inventory                     $120,000

Requirements:

1) Who are the users of AEI's financial statements and what is their informational need?

2) What part of the GAAP conceptual framework's qualitative characteristics and principles are violated by this journal entry? Also explain why/how they were violated. (Hint: refer to Module 2: Chapter 1 "Introduction to Financial Accounting" for a detailed listing and description of the qualitative characteristics and principles.)

3) What is the impact of this journal entry on the AEI's financial statements and the users of the financial statements?

4) What correction, if any, is required to AEI's accounting records? Explain.