Problems 10-2 - Correcting inventory errors (LO10-14)

During your audit of Patti Companys ending inventory at December 31, 20X1, you find the following inventory accounting errors:

a. Goods in Pattis warehouse on consignment from Valley, Inc., were included in Pattis ending inventory.

b. On December 31, 20X1, Patti received $4,700 worth of inventory, which was included in the 20X1 ending inventory. However, the invoice on this merchandise was not received by Patti until January 3, 20X2, at which time the purchase was recorded. The purchase should have been recorded in 20X1.

c. Patti purchased merchandise on account on December 30, 20X1, but did not include these goods in inventory or record the purchase. These goods were shipped by the vendor f.o.b. shipping point (title transfers when goods are shipped) and were in transit on December 31, 20X1.

d. Some of Pattis merchandise, shipped on consignment to Kaitlin Company in mid-December 20X1, was excluded from the December 31, 20X1, inventory.

e. On December 28, 20X1, Patti shipped goods costing $10,000 to Likert, f.o.b. destination (title transfers when goods are received). Likert received the goods on January 4, 20X2, and notified Patti of their arrival. The goods were not included in Pattis 20X1 inventory balance.

Required:

Assume that Patti uses the periodic inventory system. Indicate the effect (understate, overstate, or no effect) each of these errors would have on:

Problems 10-2 (template)

Effect on

Error

12/31/20X1

Ending Inventory

12/31/20X2

Ending Inventory

20X1 Cost of Goods Sold

20X2 Cost of Goods Sold

12/31/X1 Accounts Payable

12/31/X2 Accounts Payable

(a)

(b)

(c)

(d)

(e)