Allarco Inc. uses a perpetual inventory system and identified the following inventory errors in 2015.

1. On January 7, 2016, a freight bill for $6,000 was received. The bill relates to merchandise purchased in December 2015 and 25% of this merchandise was still in inventory on December 31, 2015. The freight charges were not included in either the inventory account or accounts payable on December 31, 2015.
    
2. Excluded from inventory was a box labeled "Return for Credit." The cost of this merchandise was $2,300 and the sale price to a customer had been $3,300. No entry had been made to record this return and none of the returned merchandise seemed damaged.
    
3. Goods shipped to a customer F.O.B. destination on December 28, 2015 were in transit on December 31, 2015 and had a cost of $25,000. When notified that the goods had been received by the customer on January 7, 2016, Allarco Inc.'s bookkeeper issued a sales invoice for $41,000. These goods were not included in the inventory count.
    
4. Goods were in transit from a vendor on December 31, 2015. The invoice cost was $75,000 and the goods were shipped F.O.B. shipping point on December 29, 2015. The goods will be sold in 2016 for $124,000. The goods were not included in the inventory count.

 

Item	Inventory	Accounts Receivable	Accounts Payable	Net Income
A
B
C
D

 

 

a) Determine the effect of each of the above errors on both the balance sheet accounts at December 31, 2015 and the reported net income for the year ended December 31, 2015. Positive amounts represent overstatements and negative amounts represent understatements. Enter zero for any input box that does not require a value. Please make sure your final answer(s) are accurate to the nearest whole number.

b) Assume the books are still open for 2015. Provide any required adjusting journal entries to correct the errors. Date the entries January 20. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).
Please make sure your final answer(s) are accurate to 2 decimal places.

 

c) Assume the books are now closed for 2015. Provide any required adjusting journal entries to correct the errors. Date the entries January 20. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).
Please make sure your final answer(s) are accurate to 2 decimal places.

Answer rating: 100% (QA)

Required solution Item Inventory Accounts Receivable Accounts Payable Net Income A 1500 0 6000 4500 ... View the full answer