Ladies Resale Is a consignment store that sells ladies used clothing. Dorothy May took clothes to the resale shop on December 15 to be sold on consignment. The clothes have not been sold as of December 31. Which company should include the inventory on its December 31 balance sheet?
Michael Company shipped merchandise to PJ Sales on December 31, Year 1, terms FOB destination. The merchandise arrives at PJ’s on January 4, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?
Allied Company purchased goods from Baker Company on December 28. Allied agreed to pick up the goods from Baker. On December 31 the goods were in Baker’s warehouse separated and identified as Allied’s. Which company should include the inventory on its December 31 balance sheet?
Determine the effect on a company’s Assets and Net Income from the following transaction: a loss on inventory is recorded as an adjusting entry.
| Assets | Net Income | |
|---|---|---|
| A | Decreased | Decreased |
| B | Decreased | No effect |
| C | Increased | No effect |
| D | Increased | Increased |
| E | None of the above | |
Determine the effect on a company’s Assets and Net Income from the following transaction: a company using the perpetual inventory method ships goods costing $5,000 to a customer FOB shipping point. The sale price is $8,000.
| Assets | Net Income | |
|---|---|---|
| A | Decreased | Decreased |
| B | Decreased | No effect |
| C | Increased | No effect |
| D | Increased | Increased |
| E | None of the above | |
Ancient Inc. shipped merchandise to Cantor Company on December 26, Year 1, FOB shipping point. The merchandise arrived at Cantor on January 2, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?
A company began operations at the start of Year 1.
During the year, it had cash sales of $50,000 and credit sales of $450,000. The company collected $420,000 in cash from the credit sales. The company purchased inventory costing $250,000 and paid $18,000 in dividends. The company incurred the following expenses:
| Cost of goods sold | 210,000 | Rent expense | 6,000 |
| Salary expense | 80,000 | Depreciation expense | 4,000 |
| Interest expense | 5,000 | Income tax expense | 57,000 |
Using this information, answer the following questions.
A company discovered in Year 3 that the following inventory errors had occurred:
Determine the effect those errors would have on the Year 1 and Year 2 financial statements:
| Net Income | Shareholders’ Equity | |
| A | Understated by $12,000 | Understated by $7,000 |
| B | Overstated by $5,000 | No effect |
| C | Overstated by $7,000 | Overstated by $2,000 |
| D | Overstated by $7,000 | Overstated by $7,000 |
| E | Overstated by $12,000 | Overstated by $7,000 |