SAB topic I.M., Assessing Materiality, found in FASB ASC 250-10-599-1 presents the SEC views on the issue of materiality in the financial statement. Based on this document indicate whether each of the following errors is material and should be corrected.

1. Talky Solution discovered several errors. One error overstated inventory and understated the cost of good sold by 8% of uncorrected net income. The other error understated sales revenue and understated account receivable by 8.5% of uncorrected Net Income. Consequently the two errors combined result in a slight understatement of Net Income.

2. Net income for the current year for Walker is $1,500,000. It has discovered an error that affects its contingent liability account in the amount of $35,000. The error understates the liability accounts and overstated net income. Walker has also discovered an error that affects its payable accounts in the amount of $35,000, The error understates the liability account and overstated net income.

3. Net income for Coco Company is $7,000,000 in the current year. Coco has a simple capital structure with 1,000,000 shares outstanding, so earning per share is $7.00 per share. Earning per share was $6.98 last year and $6.90 the year before that. Analyst forecasts for Coco's earnings per share this year will be $6.98 Coco discovered an error of $40,000 that affects its inventory account and overstated net income.

4. Net income for Soda, Inc. is $5,000,000 in the current year. Soda has a simple capital structure with 1,000,000 shares outstanding, so earnings per share is $5 per share. Earnings per share was $4,95 last year the year before that. Soda discovered an error of $20,000 in its estimate of bad debts that overstates income.

Answer rating: 100% (QA)

SOLUTION Judgment Case Materiality and Error Corrections Under preparation and presentation of finan... View the full answer