Problems 10-2 - Correcting inventory errors (LO10-14)
During your audit of Patti Company’s ending inventory at
December 31, 20X1, you find the following inventory accounting
a. Goods in Patti’s warehouse on consignment from Valley,
Inc., were included in Patti’s ending inventory.
b. On December 31, 20X1, Patti received $4,700 worth of
inventory, which was included in the 20X1 ending inventory.
However, the invoice on this merchandise was not received by Patti
until January 3, 20X2, at which time the purchase was recorded. The
purchase should have been recorded in 20X1.
c. Patti purchased merchandise on account on December 30,
20X1, but did not include these goods in inventory or record the
purchase. These goods were shipped by the vendor f.o.b. shipping
point (title transfers when goods are shipped) and were in transit
on December 31, 20X1.
d. Some of Patti’s merchandise, shipped on consignment to
Kaitlin Company in mid-December 20X1, was excluded from the
December 31, 20X1, inventory.
e. On December 28, 20X1, Patti shipped goods costing $10,000
to Likert, f.o.b. destination (title transfers when goods are
received). Likert received the goods on January 4, 20X2, and
notified Patti of their arrival. The goods were not included in
Patti’s 20X1 inventory balance.
Assume that Patti uses the periodic inventory system. Indicate
the effect (understate, overstate, or no effect) each of these
errors would have on:
Problems 10-2 (template)
20X1 Cost of Goods Sold
20X2 Cost of Goods Sold
12/31/X1 Accounts Payable
12/31/X2 Accounts Payable