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Citrin Corporation reported the following information related to 2017 and 2018: 2017 2018 Beginning inventory $ 634,400 $ 530,400 Purchases 1,899,990 2,450,500 Cost of goods
Citrin Corporation reported the following information related to 2017 and 2018: | |||||
2017 | 2018 | ||||
Beginning inventory | $ 634,400 | $ 530,400 | |||
Purchases | 1,899,990 | 2,450,500 | |||
Cost of goods available for sale | $ 2,534,390 | $ 2,980,900 | |||
Less: Ending inventory | 530,400 | 480,000 | |||
Cost of goods sold | $ 2,003,990 | $ 2,500,900 | |||
Sales | $ 3,003,990 | $ 4,500,900 | |||
Cost of goods sold | 2,003,990 | 2,500,900 | |||
Gross profit | $ 1,000,000 | $ 2,000,000 | |||
The 2017 ending inventory value used in the above presentation erroneously failed to include $200,000 of goods purchased FOB shipping point. The purchase and related accounts payable were correctly recorded by Citrin Corporation (only the Ending Inventory is misstated). Citrin Corporation uses a periodic inventory system. | |||||
(a) | Prepare a corrected presentation of the above data. | ||||
(b) | Prepare a corrected presentation of the above data, but this time assume that the company attempts to correct the error from 2017 and counts the $200,000 missing shipment twice in the 2018 ending inventory (the 2018 ending inventory is overstated). | ||||
(c) | In part (a), does the error matter, given that the combined gross profit for both years is $3,000,000 under both the incorrect and correct presentation? | ||||
(d) | What error(s) would have been included in the December 31, 2017 balance sheet? HINT: Assets = Liabilities + Equity. If inventory is misstated, then another account must also be misstated if the accounting equation remains in balance. |
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