Account 221 Assistance
Flair4H
hwm_b-15.01.xlsProblem
| Roll Call manufactures a unique key chain with a built-in radio frequency identification chip. This device is issued to students at State University, and a host computer tracks student attendance at each class by automatically monitoring the whereabouts of the key chains. | |
| Roll Call’s ending inventory at December 31, 20X3 was $1,670,000. However, this value was transposed and entered into the accounting system at $1,760,000. As a result, ending inventory was overstated and cost of goods sold was understated by $90,000. This error was discovered in March of 20X4, when the CFO was preparing a presentation for potential investors. The 20X3 books had long-since been closed, and financial reports were already released. The CFO proposed to correct the error by debiting Cost of Goods Sold and crediting Inventory for $90,000. Net income for 20X3 was $900,000, and 20X4 should be at about the same level. | |
| (a) | What is the appropriate journal entry to correct the error? You may assume the firm uses a periodic inventory system, and the balance of the Inventory account is shown as $1,760,000. |
| (b) | In the CFO presentation to potential investors, how much should be reported as 20X3 net income? How much should be reported as inventory on hand at December 31, 20X3? |
| (c) | Is the amount of the error material? If you are an accountant for Roll Call and instructed by the CFO to record the erroneous entry, what should you do? |
&R&"Myriad Web Pro,Bold"&20B-15.01
B-15.01
Worksheet
| (a) | |||||
| GENERAL JOURNAL | |||||
| Date | Accounts | Debit | Credit | ||
| Mar. 20X4 | |||||
| (b) | |||||
| (c) |
&L&"Myriad Web Pro,Bold"&12Name:
Date: Section: &R&"Myriad Web Pro,Bold"&20B-15.01
B-15.01
