Student Name:
Class:
2012 2013 2014
615,000$ 957,000$ 780,000$
(56,000) 56,000
20,000 (20,000)
559,000$ 1,033,000$ 760,000$
Correct! Correct! Correct!
2012 2013 2014
230,000$ 285,000$ 241,000$
56,000 (56,000)
(20,000) 20,000
286,000$ 209,000$ 261,000$
Correct! Correct! Correct!
2012 2013 2014
(c)
Total current assets:
Reported
56,000
(20,000)
1,311,000$ 1,345,000$ 1,200,000$
Correct! Correct! Correct!
2012 2013 2014
(d)
Equity:
Reported
56,000
(20,000)
1,443,000$ 1,510,000$ 1,242,000$
Correct! Correct! Correct!
Instructor
Total net income for the combined three-year period ($756,000) is not affected by the errors.
This is because these errors are “self-correcting” – that is, each overstatement (or
Adjustments to Correct Inventory Errors
NAVAJO COMPANY
from the inventory errors? Explain
2. What is the error in total net income for the combined three-year period resulting
McGraw-Hill/Irwin
Problem 06-06A
The understatement of inventory by $56,000 results in an overstatement of cost of
goods sold by that same amount. The $56,000 overstatement of cost of goods sold
results in an understatement of gross profit by the same amount. This
results in an understatement of equity by the same amount in that year.
3. Explain why the understatement of inventory by $56,000 at the end of 2012
figure is understated by the amount of the inventory understatement.
understatement of gross profit carries through to an understatement of net
understatement) of net income is offset by a matching understatement (or overstatement)
in the following year.
Adjustments: 12/31/2012 error
income. Since the understated net income is closed to equity, the final equity
(a)
Cost of goods sold:
(b)
Net income:
Reported
Adjustments: 12/31/2012 error
12/31/2013 error
Corrected
Reported
Corrected
12/31/2013 error
Corrected
Adjustments: 12/31/2012 error
12/31/2013 error
Corrected
Adjustments: 12/31/2012 error
12/31/2013 error
Key Figures 2012 2013 2014
(a) 615,000$ 957,000$ 780,000$
(b) 230,000 285,000 241,000
(c) 1,255,000 1,365,000 1,200,000
(d) 1,387,000 1,530,000 1,242,000
56,000$
20,000$
286,000$
209,000$
261,000$
NAVAJO COMPANY
Given Data P06-06A:
Total equity
Total current assets
Net income
Cost of goods sold
Understated December 31, 2012
Inventory errors:
Corrected net income: 2014
Corrected net income: 2013
(1) Corrected net income: 2012
Check figures:
Overstated December 31, 2013
Student Name:
Class:
Number and total cost of units available for sale:
Unit Total
Units Cost Cost
23,000 $15 $345,000
30,000 $18 540,000
39,000 $20 780,000
23,000 $25 575,000
35,000 $26 910,000
150,000 $3,150,000
Correct! Correct!
Unit Total
Units Cost Cost
150,000 $3,150,000
35,000 $26 910,000
5,000 $25 125,000 1,035,000
$2,115,000
Correct!
Unit Total
Units Cost Cost
(b) LIFO periodic:
Total cost of units available
23,000 $15 345,000
17,000 $18 306,000 651,000
$2,499,000
Correct!
Unit Total
Units Cost Cost
Total cost of units available
Less ending inventory – WA
$2,310,000
Correct!
Instructor
Inventory
SEMINOLE COMPANY
Problem 06-07A
McGraw-Hill/Irwin
Less ending inventory – LIFO
Beginning inventory:
(a) FIFO periodic:
Total cost of units available
Less ending inventory – FIFO
Cost of goods sold
Units available for sale:
Purchased Nov. 10:
Purchased Aug. 1:
Purchased May 25:
Purchased Mar. 7:
Cost of goods sold
Cost of goods sold
23,000
15$
Units Cost
30,000 18$
39,000 20$
23,000 25$
35,000 26$
40,000
2,155,000$
2,499,000$
2,310,000$
SEMINOLE COMPANY
Given Data P06-07A:
Units in beginning inventory
Cost of each unit
Check figures:
(2) Cost of goods sold: FIFO
Cost of goods sold: LIFO
Cost of goods sold: Weighted average
Purchases:
May 25
Aug. 1
Nov. 10
Ending units in inventory, Dec. 31
Mar. 7