On 31 December 20X5, Office Systems Ltd.’ s books showed an ending inventory valuation of $ 490,000 based on a periodic inventory system. The accounts for 20X5 have been adjusted and closed. Subsequently, the bookkeeper pre-pared a schedule that showed that the inventory should be $ 569,800, not $ 490,000.
a. Merchandise in store (at 40% above cost) $ 490,000
b. Merchandise purchased, in transit (shipped FOB destination, estimated freight, not included, $ 800), invoice price 9,000
c. Merchandise held for later shipment to Davis Electronics at sales price, 40% above cost ( already billed to Davis Electronics) 16,800 d. Merchandise out on consignment at sales price ( including markup of 50% on selling price) 24,000
e. Merchandise (office equipment) removed from the warehouse and now used in the company’s marketing office ( at cost) 20,000 f. Merchandise out on approval, sales price = $ 10,000, cost = $ 4,000 10,000 Total inventory as corrected $ 569,800

Income tax rate = 30%
1. Review the items making up the list of inventory. Compute the correct ending inventory amount.
2. The income statement and SFP now reflect a closing inventory of $ 490,000. List the items on the income statement and SFP for 20X5 that should be corrected for the above errors; give the amount of the error for each item affected.

  • CreatedFebruary 17, 2015
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