Exercise 8-25

At December 31, 2016, Sweet Corporation reported current assets of $389,780 and current liabilities of $189,600. The following items may have been recorded incorrectly.

1.		Goods purchased costing $20,180 were shipped f.o.b. shipping point by a supplier on December 28. Sweet received and recorded the invoice on December 29, 2016, but the goods were not included in Sweets physical count of inventory because they were not received until January 4, 2017.
2.		Goods purchased costing $15,740 were shipped f.o.b. destination by a supplier on December 26. Sweet received and recorded the invoice on December 31, but the goods were not included in Sweets 2016 physical count of inventory because they were not received until January 2, 2017.
3.		Goods held on consignment from Claudia Kishi Company were included in Sweets December 31, 2016, physical count of inventory at $13,700.
4.		Freight-in of $2,750 was debited to advertising expense on December 28, 2016.

Compute the current ratio based on Sweets balance sheet. (Round ratio to 2 decimal places, e.g. 2.31:1.)

The current ratio

:1

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Recompute the current ratio after corrections are made. (Round ratio to 2 decimal places, e.g. 2.31:1.)

The current ratio

:1

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By what amount will income (before taxes) be adjusted up or down as a result of the corrections? Assume that goods are sold in item #4.

Adjust Income

$