Exercise 8-25

At December 31, 2016, Riverbed Corporation reported current assets of $404,870 and current liabilities of $197,500. The following items may have been recorded incorrectly.

1. Goods purchased costing $21,690 were shipped f.o.b. shipping point by a supplier on December 28. Riverbed received and recorded the invoice on December 29, 2016, but the goods were not included in Riverbeds physical count of inventory because they were not received until January 4, 2017.

2. Goods purchased costing $14,050 were shipped f.o.b. destination by a supplier on December 26. Riverbed received and recorded the invoice on December 31, but the goods were not included in Riverbeds 2016 physical count of inventory because they were not received until January 2, 2017.

3. Goods held on consignment from Claudia Kishi Company were included in Riverbeds December 31, 2016, physical count of inventory at $14,100.

4. Freight-in of $2,800 was debited to advertising expense on December 28, 2016.

Part 1: Compute the current ratio after corrections are made.

Part 2: By what amount will income (before taxes) be adjusted up or down as a result of the corrections? Assume that goods are sold in item #4.