Question

Fulkerson Metals maintains accurate records of the inventory purchased from its suppliers and sold to customers. The records show the following purchases and sales during 2015.


Fulkerson uses a periodic inventory system and believes there are 25 units of ending inventory. However, Fulkerson neglects to make a final inventory count at the end of the year. An employee accidentally threw out 4 units of inventory, leaving only 21 units. Fulkerson is not aware of the lost inventory.

Required:
1. What amount will Fulkerson calculate for ending inventory and cost of goods sold using FIFO, assuming it erroneously believes 25 units remain in ending inventory?
2. What amount would Fulkerson calculate for ending inventory and cost of goods sold using FIFO if it correctly knows that only 21 units remain in ending inventory?
3. What effect will the inventory error have on reported amounts for?
(a) Ending inventory,
(b) Retained earnings,
(c) Cost of goods sold,
(d) Net income (ignoring tax effects) in 2015?
4. Assuming that ending inventory is correctly counted at the end of 2016, what effect will the inventory error in 2015 have on reported amounts for?
(a) Ending inventory,
(b) Retained earnings,
(c) Cost of goods sold,
(d) Net income (ignoring tax effects) in2016?


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  • CreatedJuly 15, 2014
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