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    Inventory Memo

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    Inventory is the most significant asset on the balance sheet. It can make or break a company, depending on the amount of inventory involved. Keeping inventory at a minimum is a best-case scenario.

    You are the controller of Toys for Twins, Inc. Linda Barnes, the president, recently mentioned to you that she found an error in the 2006 financial statements which she believes has corrected itself. She determined, in discussions with the Purchasing Department, that the 2006 ending inventory was overstated by $1 million. Linda says that the 2007 ending inventory is correct. Thus, she assumes that 2007 income is correct. Linda says to you, "What happened has happened—there's no point in worrying about it anymore."
    ou conclude that Linda is incorrect. Write a brief about 200-250 word, professional memo to Linda and clarify the situation.

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    Solution Preview

    In handling this task, you need to focus on the main points of the scenario in the memo to Linda.

    An error was located in the 2006 financial statements. If an error was located, it cannot correct itself, as Linda presumes. An error is a mistake - or a piece of data that is falsely stated through unintentional means. An error cannot correct itself without human intervention, in the majority of cases. In this case, the 2006 ending inventory was overstated by $1 million. In order to have an overstatement, inventory was not credited (reduced) by $1 million. This would not ...

    Solution Summary

    This solution explains the facts that should be included in the professional memo to Linda. The main points, reasons, and repercussions for a failure to act are also discussed. A comprehensive solution is provided.