Question

Mobile Security, Inc.

Mobile Security, Inc. (MSI) has been an audit client of Leo & Lee, LLP for the past 12 years. MSI is a small, publicly traded aviation company based in Cleveland, Ohio, where it manufactures high-tech unmanned aerial vehicles (UAV), also known as drones, and other surveillance and security equipment. MSI’s products are primarily used by the military and scientific research institutions, but there is growing demand for UAVs for commercial and recreational use. MSI must go through an extensive bidding process for large government contracts. Because of the sensitive nature of government contracts and military product designs, both the facilities and records of MSI must be highly secured.

In October 2022, MSI installed a new cloud-based inventory costing system to replace a system that had been developed in-house. The old system could no longer keep up with the complex and detailed manufacturing costing process that provides information to support competitive bidding. MSI’s IT department, together with the consultants from the software company, implemented the new inventory costing system which went live on December 1, 2022. Key operational staff and the internal audit team from MSI were significantly engaged in the selection, testing, training, and implementation stages.

The inventory costing system uses various manufacturing costing and unit of production inputs to calculate and produce a database of all product costs and recommended sales prices. It also integrates with the general ledger each time there are product inventory movements such as purchases, sales, waste, and damaged inventory losses.

The following list of sales invoices are entered in the sales journal for the months of June 2023 and July 2023, respectively. All goods are shipped FOB shipping point.

				Sales Invoice Amount		Sales Invoice Date		Cost of Merchandise Sold		Date Shipped
June
		a.		$30,000		June 21		$20,000		June 29
		b.		20,000		June 30		8,000		June 20
		c.		10,000		June 29		6,000		June 30
		d.		40,000		June 30		24,000		July 3
		e.		100,000		June 30		56,000		June 30	(shipped to consignee)
July
		f.		$60,000		June 30		$40,000		July 1
		g.		40,000		July 2		23,000		July 1
		h.		80,000		July 3		55,000		June 30

Analysis and evaluation: Analyze the eight transactions shown above. Based on a sales cutoff analysis, record necessary adjusting journal entries at June 30 in connection with the foregoing data.

List of Accounts

• Accounts Receivable
• Cost of Goods Sold
• Inventory
• Revenues

Date	Account Titles and Explanation	Debit	Credit
June 30
	(To record the revenues)
June 30
	(To record the cost of goods sold)

Answer 1

Answer:

Date	Account title and Explanation	Debit	Credit
June 30	Accounts receivable	$260,000
	Revenues		$260,000
	[To record credit sales]
June 30	Cost of goods sold	$154,000
	Inventory		$154,000
	[To record the cost of goods sold]

Explanation:

Given that FOB shipping point. In FOB shipping point, Sales invoice date is the 'Sales recognition date'.

If it is FOB destination then Shipping date is the 'Sales recognition date'.

Therefore,

	Sales Invoice Date	Sales Invoice Amount	Cost of Merchandise Sold
a	June 21	$30,000	$20,000
b	June 30	$20,000	$8,000
c	June 29	$10,000	$6,000
d	June 30	$40,000	$24,000
e	June 30	$100,000	$56,000
f	June 30	$60,000	$40,000
Total		$260,000	$154,000