Question
Bree's Designs performed a count of the inventory in their warehouse on December 31st (i.e., year-end), and it totaled $250,000. In addition: On December 26th,
Bree's Designs performed a count of the inventory in their warehouse on December 31st (i.e., year-end), and it totaled $250,000.
In addition:
- On December 26th, Bree's Designs shipped inventory of $37,500 to Ellen Co. The inventory was free on board destination. It arrived atEllen Co.'swarehouse on January 3rd.
- On December 28th,Bree's Designsshipped inventory of $25,000 toGoodieCo. The inventory was free on board shipping point. It arrived atGoodie Co.'s warehouse on January 5th.
- As of December 31st,Bree's Designshad inventory of $7,500 on consignment atNate's Foodswarehouse.
- On January 3rd,Bree's Designsreceived inventory of $12,500 from Erkens Inc. The inventory was shipped from Erkens Inc. on December 26th, and it was free on board destination.
Also, unrelated to the above transactions:
- Bree's Designsdetermined that inventory related to Product C in the amount of $65,000 could be replaced at a cost of $40,000 (i.e., due to fall in customer demand).
- This inventory(for Product C) is included in the count on December 31st (i.e., part of the $250,000 is $65,000 for Product C).
Part A: What should be the ending balance ofBree's Designsinventory (i.e., at year-end, December 31) considering all the information above?Show each piece of your calculation, and be sure to calculate the total balance.
Part B:To avoid carry-through errors, assume your answer to Part A is $300,000 (that is, the correct amount of inventory to report on the balance sheet should be $300,000). IfBree's Designsdid not make the necessary corrections to inventory (i.e., the balance remained at $250,000), what would be the misstatement?That is,what accounts would be misstated, by how much, and in what direction?Note: your answer will only include two accounts and only one general calculation is necessary to show.
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