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Assignment 3.2 Inventory Cutoff

The auditor was engaged to audit ABC Company's 2017 financial statements. Based on additional information found, the following adjustments need to be made to inventory amounts reported: 1) Add $20,000 for goods shipped to a customer on December 31, 2017 2) Deduct $16,000 for goods on consignment from a vendor 3) Add $93,200 total for the net effect of all other inventory adjustments This results in the correct ending inventory amount of $551,200 being reported on the balance sheet. If no adjustments were made, net income would be understated by $21,000.

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Hannah Nolong
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217 views

Assignment 3.2 Inventory Cutoff

The auditor was engaged to audit ABC Company's 2017 financial statements. Based on additional information found, the following adjustments need to be made to inventory amounts reported: 1) Add $20,000 for goods shipped to a customer on December 31, 2017 2) Deduct $16,000 for goods on consignment from a vendor 3) Add $93,200 total for the net effect of all other inventory adjustments This results in the correct ending inventory amount of $551,200 being reported on the balance sheet. If no adjustments were made, net income would be understated by $21,000.

Uploaded by

Hannah Nolong
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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You were engaged to audit the 2017 financial statements of ABC Company.

A physical count of i
on such count, inventory was valued at P458,000. The following additional information has been

a ● A shipment of goods to a customer on December 31, were not included in the year-end inv
the customer on January 8,2018. The sale was properly recorded in 2018.

b ● Goods valued at P50,000 are on consignment with a customer. These goods were include

c ● Goods valued at P5,000 were received from a vendor on January 5, 2018. The related invo
The goods were shipped on December 31, 2017, terms FOB shipping point 

d ● Merchandise received on January 6, 2018 costing P7,200 was entered in the purchase reg
was made FOB supplier's warehouse on December 31, 2017. Since it was not on hand at

e ● Merchandise costing P18,000 was received on January 3, 2018 and the related purchase
the shipment was made on December 29, 2017. FOB destination

f ● Goods costing P8,000 were shipped on December 31, 2017 and were delivered to the cus
were FOB destination. The goods were included in ending inventory for 2017 and the sale

g ● An invoice for goods costing P32,000 was received and recorded as a purchase on Decem
FOB shipping point, were received on January 2, 2018 and thus were not included in the p

h ● Goods valued at P16,000 are on consignment from a vendor. These goods are included in

i ● Merchandise costing P6,500 was received on December 28, 2017 and the invoice was not
purchasing agent and was marked "on consignment"

j ● A P60,000 shipment of goods to a customer on December 30, 2017, terms FOB destinatio
costing P45,000 and delivered to the customer on January 6, 2018, were not included in 2

Required:
1. Compute the proper inventory amount to be reported on ABC Company's balance she
2. By how much would the 2017 net income be misstated if no adjustment were made fo
ny. A physical count of inventory was conducted on December 31,2017 and based
al information has been found relating to certain inventory transactions.

uded in the year-end inventory. The goods cost P20,000 and were delivered to

ese goods were included in the above inventory figure

5, 2018. The related invoice was received and recorded on January 12, 2018.

ered in the purchase register on January 7, 2018. The invoice showed shipment
e it was not on hand at December 31, it was not included in inventory

d the related purchase invoice recorded January 5. The invoice showed

ere delivered to the customer on January 2, 2018. The terms of the invoice
y for 2017 and the sale of P10,000 was recorded in 2018

as a purchase on December 31, 2017. The related goods, shipped


ere not included in the physical inventory  

e goods are included in the year-end inventory figure

and the invoice was not recorded. You located it in the hands of th

7, terms FOB destination, was recorded as   a sale in 2017. The goods,


, were not included in 2017 ending inventory

Company's balance sheet for the year ended December 31, 2017
djustment were made for the  above items
Inventory Net Sales Net Purchases
- -
20,000 - -

5,000 - 5,000

7,200 - 7,200

32,000 - -

(16,000) - -

45,000 (60,000) -
TOTAL 93,200 (60,000) 12,200 21,000
458,000

551,200
Understated by 21,000

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