Instructions

Harris Bearing Company uses the periodic inventory system to account for its inventory. The following information was available from the companys inventory records for October:

Purchases

10/1 (balance) 2,400 units @$10

10/12 3,000 units @$5

10/25 1,500 units @$9

Sales

10/14 3,800 unites @$16

10/30 1,700 units @21

Requirements:

1. On October 31, Harris found that the net realizable value of its inventory is $9,800. Harris usually states its inventory on its balance sheet at lower of net realizable value or cost (assuming the use of First-in First-Out). How Harris will report its inventory on its October 31s balance sheet and its cost of goods sold on its October income statement? (Hint: the lower of cost vs. net realizable value rule).

2. On November 9, when performing the monthly audit for October, Harriss auditor identified the following transaction: goods costing $2,000 were sold and shipped to a customer, Buckle Inc., for a sale price of $5,700 on October 28. The shipping term was FOB shipping point. Harris recorded the sales and adjusted its inventory record when the customer received the goods on November 4. Discuss whether, and by how much, this inventory error affects Harris inventory reported on its Balance Sheet of October 30 and cost of goods sold reported in its Octobers income statement (Hint: effects of an inventory error).