Situation 1. Kamloops’s inventory supplier shipped $15,000 of inventory to Kamloops on December 31, 2019, FOB shipping point. Alphonzo indicated that he did not record the inventory for the year ended December 31, 2019, because it was not received until January 2, 2020.

Situation  2. Included in net sales and accounts receivable was $8,400 for merchandise ordered by a customer that was packed and in the warehouse. The customer indicated that they might pick it up on January 10, 2020. The customer will pay for the merchandise within 30 days of pick up. The cost of the merchandise was $4,300 and was included in inventory because the merchandise was still in Kamloops’s warehouse.

Situation 3. During the last week of December, the company had run a promotional campaign in the local newspaper. The cost of the campaign was $3,500. Alphonzo recorded it as a prepaid expense because he anticipates that January 2020 sales will be higher as a result of the campaign.

Questions:

 5. Using your answer from question 4, explain using the definitions of the “elements” of financial reporting how each transaction should have been recorded. 

7. Review situation (3) from the case. Apply the expense recognition criteria to situation (3) and determine if the accounting is correct or not. Use the definitions of the “elements” of financial reporting to explain your answer. 

8. Review situation (1) from the case. Determine whether Kamloops properly recorded the purchase of inventory. Use the applicable definitions of the “elements” of financial reporting to explain your answer. 

Answer rating: 100% (QA)

5 Kamloops should have recorded the inventory as an asset when it was shipped on December 31 2019 be... View the full answer