The physical inventory for Ajak Manufacturing was taken on December 30, 2011, rather than December 31, because the client had to operate the plant for a special order the last day of the year. At the time of the client€™s physical count, you observed that acquisitions represented by receiving report number 2631 and all preceding ones were included in the physical count, whereas inventory represented by succeeding numbers was excluded. On the evening of December 31, you stopped by the plant and noted that inventory represented by receiving report numbers 2632 through 2634 was received subsequent to the physical count but before the end of the year. You later noted that the final inventory on the financial statements contained only those items included in the physical count. In testing accounts payable at December 31, 2011, you obtain a schedule from the client to aid you in testing the adequacy of the cutoff. The following schedule includes the information that you have not yet resolved:

Required
a. Explain the relationship between inventory and accounts payable cutoff.
b. For each of the receiving reports, state the misstatement in inventory or accounts payable, if any exists and prepare an adjusting entry to correct the financial statements, if a misstatement exists.
c. Which of the misstatements in part b are most important?Explain.

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INFORMATION ON THE VENDOR'S INVOICE Amount Presently Included in or Excluded from FOB Origin Receiving Report Number Amount of Vendor's Invoice Accounts Payable Invoice Date Shipping Date Destination Origin Destination 2631 2632 2633 2634 2635 2636 2637 2638 S4,256.40 6,320.54 3,761.22 7,832.18 6,847.77 6,373.58 5,878.36 3,355.05 Included Excluded Included Excluded Included Excluded Excluded Excluded 12-30-11 12-26-11 12-31-11 12-16-11 12-28-11 01-03-12 01-05-12 12-31-11 12-30-11 12-15-11 12-26-11 12-27-11 12-31-11 12-31-11 12-26-11 01-03-12 Destination Origin Destination Origin Oigin All entries to record inventory acquisitions are recorded by the client as a debit to purchases and a credit to accounts payable.