Question

Problem 8-2

Whispering Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2020.

Inventory at December 31, 2020 (based on physical count of goods in Whispering’s plant, at cost, on December 31, 2020)                        $1,436,610

Accounts payable at December 31, 2020              1,290,900

Net sales (sales less sales returns)                         7,739,500

Additional information is as follows.

1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2020. These tools had a cost of $31,600 and were billed at $40,600. The shipment was on Whispering’s loading dock waiting to be picked up by the common carrier.
2. Goods were in transit from a vendor to Whispering on December 31, 2020. The invoice cost was $76,600, and the goods were shipped f.o.b. shipping point on December 29, 2020.
3. Work in process inventory costing $30,600 was sent to an outside processor for plating on December 30, 2020.
4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2020, were not included in the physical count. On January 8, 2021, the tools costing $32,600 were inspected and returned to inventory. Credit memos totaling $47,600 were issued to the customers on the same date.
5. Tools shipped to a customer f.o.b. destination on December 26, 2020, were in transit at December 31, 2020, and had a cost of $26,600. Upon notification of receipt by the customer on January 2, 2021, Whispering issued a sales invoice for $42,600.
6. Goods, with an invoice cost of $27,600, received from a vendor at 5:00 p.m. on December 31, 2020, were recorded on a receiving report dated January 2, 2021. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2020.
7. Goods received from a vendor on December 26, 2020, were included in the physical count. However, the related $56,600 vendor invoice was not included in accounts payable at December 31, 2020, because the accounts payable copy of the receiving report was lost.
8. On January 3, 2021, a monthly freight bill in the amount of $8,600 was received. The bill specifically related to merchandise purchased in December 2020, one-half of which was still in the inventory at December 31, 2020. The freight charges were not included in either the inventory or in accounts payable at December 31, 2020.

Prepare a schedule of adjustments as of December 31, 2020, to the initial amounts per Whispering’s accounting records. (If an amount reduces the account balance then enter either with a negative sign preceding the number, e.g. -15,000 or in parenthesis, e.g. (15,000).)

WHISPERING COMPANY

Schedule of Adjustments

December 31, 2020

Inventory                Accounts Payable Net Sales

Initial amounts               $1,436,610                     $1,290,900                     $7,739,500

Adjustments:                                                                       

1.                       

2.                       

3.                       

4.                       

5.                       

6.                       

7.                       

8.                       

Total adjustments                       

Adjusted amounts                        

Answer 1

Inventory is always adjusted with cost and net sale is adjusted with the invoice amount. Accounts payable account is added with the cost amount as per invoice and subtracted with any credit notes issued. A sale will affect Inventory on its cost and Net sales with the invoice price. For every purchases inventory and accounts payable.

	Inventory	Accounts Payable	Net Sales
Initial Balance	$14,36,610.00	$12,90,900.00	$77,39,500.00
Adjustment 1	-$31,600.00		$40,600.00
Adjustment 2	$76,600.00	$76,600.00
Adjustment 3	$30,600.00
Adjustment 4	$32,600.00		-$47,600.00
Adjustment 5	-$26,600.00		$42,600.00
Adjustment 6	$27,600.00
Adjustment 7		$56,600.00
Adjustment 8	$8,600.00	$8,600.00
Total Adjustment	$1,17,800.00	$1,41,800.00	$35,600.00
Adjusted Amounts	$15,54,410.00	$14,32,700.00	$77,75,100.00