Question 3 (16 marks) 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: 1. 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 a. Inventory of $25,000 was received from an offshore publisher on December 29, 2019 (and included in the December 31, 2019 physical inventory count). The purchase had not been recorded as an account payable until well into January 2020. ABC used a periodic system. b. Books costing $80,000 were shipped to a large chain of bookstores in the final week of the fiscal year; a sale (and receivable) of $125,000 had correspondingly been recorded. However, the bookstore chain actually had accepted the books only on consignment 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 Stock B 20 38 35 Stock C 18 50 55 $40 1. 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: 2. 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) Debit Credit Part C (5 marks) You are auditing the records of Omega Corporation. The company took a physical inventory under your observation. However, the valuations have not been completed. The records of the company provide the following data: sales, $800,000 (gross); returned sales, $35,000 (returned stock); purchases (gross), $500,000; beginning inventory, $32,000; freight-in $16,000; and purchase returns and allowances, $14,000. You anticipate that the gross margin will average 30% of net sales for the year under audit. Required: Compute the cost of goods available for sale and estimate the cost of the ending inventory using the gross margin method. Show all calculations. Cost of goods available for sale: Cost of the ending inventory