Hi! Can you please explain to me on how to solve this problem? The details and some information needed are included. I will appreciate your help. Thank you in advance!
Information: Terrys management is afraid that an error was made when calculating COGS. Most of the calculations have already been checked by the auditors, but management still thinks that one inventory item has not been correctly recorded. They would like you to go back through the inventory calculations for that item to correct any possible mistakes. Currently they show that 5,400 units of item TC1'78, purchased for $3 each, were on hand at the beginning of the year, that $4?6,000 worth of TC178 was purchased during the year, that discounts of $2,400 were earned by making early payments on these purchases, and that $3,800 worth of returns were made during the year. The records show that only 4,900 units of the beginning T123178 inventory remained at the end of the year. Terry uses the perpetual LIFOI system for calculating inventory. Their inventory transactions for item TCJTB for the period are as follows: (NOTE that the vendor provides free shipping on all units of rows) - At the beginning of the period, 5,400 units of ICES, purchased for $8.00 each, were on hand. . On Jan 15, an additional 16,000 units were purchased for $9.00 each. - On February 23, 14,000 units were sold. - On March 14, an additional 9,000 units Were purchased for $11.00 each. . On March 20, a 2.0% cash discount was earned by paying for the March 14 purchase early. . On March 30, 10,100 units were sold. . On July 30, 3,600 units were sold. . On August 20, an additional 15,000 units were purchased for $14.00 each. . On September 2, 7,000 units were sold . On December 1, 6,000 units were sold. Terry's management would like to know the effect of the sale on the following ratios: - Inventory Turnover (COGS f average total inventory) - Current Ratio . RDA Assignment: Calculations 1. Calculate each of the three (3) ratios before you make any adjustments. 2_ [Jake the appropriate journal entries, if any, to correct the reported values of item TUE-'8 {including any necessary changes to income tax expense]. 3. Make any necessary changes to the nancial statements. 3. Make any necessary changes to the financial statements. 4. Calculate the three (3) ratios after you make any adjustments.\fMulti-Step Income Statement For Year Ended December 31, 2019 Sales Revenue Sales Revenue $16,200,000 Less: Sales Discounts $194,400 Sales Returns $769,500 5963,900 Net Sales Revenue $15,236, 100 Cost of Goods Sold Cost of Goods Sold $8,867,212 Gross Profit $6,368,888 Operating Activities Selling Expenses Advertising Expense $303,750 Bad Debt Expense $21,060 Miscellaneous Selling Expenses $78,975 Sales Force Salaries Expense $222,750 Selling Commissions Expense $810,000 Shipping Expense $132,638 $1,569,173 Administrative Expenses Executive Salaries Expense $708,750 Depreciation Expense $972,000 Insurance Expense $314,725 Miscellaneous Admin. Expenses $7,999 Office Supplies Expense $62,775 Consulting and Legal Fees $10,125 Utilities Expense $121,500 Total Administrative Expenses $2,197,874 $3,767,047 Income from Operations $2,601,841 Other Gains and Losses Rent Revenue $50,625 Loss on factoring ($21,870) Interest Expense ($103,275) ($74,520) Income from Continuing Operations before Taxes $2,527,321 Income Tax Expense ($758, 196) Net Income $1,769,125 EPS $0.93Terry Co. Balance Sheet As of December 31 2019 2018 Assets Current Assets Cash $1,729,890 $810,000 A/R $364,500 $1,377,000 Allowance for Bad Debts ($25,515) ($405,000) Due from Factor First National $21,870 Inventory $1,944,000 $2,268,000 Prepaid Insurance $184,000 5243,000 Prepaid Rent $202,500 $162,000 Total Current Assets $4,421,245 $4,455,000 Long-term Investments Loans to other businesses $648,000 $648,000 Expansion Fund $486,000 5486,000 Total Long-term Investments $1,134,000 $1,134,000 PPE Land $1,782,000 $1,134,000 Building $1,296,000 $1,296,000 Equipment $4,536,000 $2,106,000 Accumulated Depreciation ($2,592,000) ($1,620,000) Total PPE $5,022,000 $2,916,000 Intangible Assets Patents, net $243,000 $243,000 Total Assets $10,820,245 $8,748,000 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $363,174 $972,000 Income Tax Payable $244,371 $162,000 Unearned Revenue $405,000 $243,000 Wages Payable $194,400 $202,500 Recourse Liability $54,675 Current Portion of Loan Payable $81,000 $81,000 Total Current Liabilities $1,342,620 $1,660,500 Long-term Debt Loan Payable $405,000 $486,000 Notes Payable $2,268,000 $1,296,000 Total Long-term Debt $2,673,000 $1,782,000 Total Liabilities $4,015,620 $3,442,500 Stockholders' Equity Common Stock $1,900,000 $1,900,000 ($1 par, 5,000,000 authorized, 1,900,000 outstanding) Additional Paid-In Capital $486,000 $486,000 Retained Earnings $4,418,625 $2,919,500 Total Stockholders' Equity $6,804,625 $5,305,500 Total Liabilities and Stockholder's Equit $10,820,245 $8,748,000
