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
1,255,000$ 1,365,000$ 1,200,000$
56,000
(20,000)
1,311,000$ 1,345,000$ 1,200,000$
Correct! Correct! Correct!
2012 2013 2014
1,387,000$ 1,530,000$ 1,242,000$
56,000
(20,000)
1,443,000$ 1,510,000$ 1,242,000$
Correct! Correct! Correct!
Reported
Adjustments: 12/31/2012 error
12/31/2013 error
Corrected
Reported
Adjustments: 12/31/2012 error
12/31/2013 error
Corrected
Corrected
Reported
Adjustments: 12/31/2012 error
12/31/2013 error
Corrected
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
(a)
Cost of goods sold:
(b)
Net income:
(c)
Total current assets:
(d)
Equity:
Instructor
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 05-06A
Reported
Adjustments: 12/31/2012 error
12/31/2013 error
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 understatement of gross profit carries through to an understatement of net income. Since
the understated net income is closed to equity, the final equity figure is understated by the amount of the
inventory understatement.
Total net income for the combined three-year period ($756,000) is not affected by the errors. This is because
these errors are “self-correcting” – that is, each overstatement (or understatement) of net income is offset by
a matching understatement (or overstatement) in the following year.
Key Figures 2012 2013 2014
(a) 615,000$ 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$
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
Total equity
Total current assets
Net income
Cost of goods sold
Given Data P05-06A:
NAVAJO COMPANY
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
Unit Total
Units Cost Cost
Total cost of units available
(b) LIFO periodic:
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
$2,310,000
Correct!
Problem 05-07A
McGraw-Hill/Irwin
Instructor
Cost of goods sold
Cost of goods sold
Less ending inventory – LIFO
(a) FIFO periodic:
(c) Weighted-average periodic:
Total cost of units available
Less ending inventory – FIFO
Cost of goods sold
Inventory
SEMINOLE COMPANY
Units available for sale:
Purchased Nov. 10:
Purchased Aug. 1:
Purchased May 25:
Purchased Mar. 7:
Beginning inventory:
23,000
15$
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$
Given Data P05-07A:
SEMINOLE COMPANY