Question
Part A. (6 marks) ABC Publishers Inc. draft 2019 financial statements showed a tentative net income of $550,000. After the draft statements were prepared, but
Part A. (6 marks)
ABC Publishers Inc. draft 2019 financial statements showed a tentative net income of $550,000. After the draft statements were prepared, but prior to their approval and release, the external auditors discovered two errors as listed in the table below.
Required:
- What effect will correction of these errors have on the net income for the year ended 31 December 2019? Indicate the amount and sign (+ or -) of the adjustment you need to make to net income for items a and b below. (4 marks)
Errors | Effect of correcting errors on 2019 net income |
|
|
|
|
2. What will be the revised 2019 net income? (2 marks) ____________________
Question 3 (continued)
Part B (5 marks)
The information shown below relating to the ending inventory was taken at lower of cost or NRV from the records of Components Corporation:
|
| Per Unit | |
Inventory Classification | Quantity | Cost | NRV |
Keyboards |
|
|
|
Stock A | 12 | $47 | $40 |
Stock B | 20 | 38 | 35 |
Stock C | 18 | 50 | 55
|
- Determine the valuation of the above inventory at cost and at lower of cost or NRV, assuming application of lower-of-cost-or NRV valuation by individual items. (2 marks)
Inventory at cost:_____________________________________________
Inventory at Lower of Cost or NRV:____________________________
- Give the entry to record the writedown, if any, to reduce ending inventory to lower of cost or NRV. Assume periodic inventory and the allowance method. (3 marks)
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