The following items relating to the Mets Co's periodic inventory system, if incorrect, have not been corrected as of 12/31/05:
a Goods purchased FOB DESTINATION, with cost of $250,000, are in transit at 12/31/05. A purchase was recorded. These goods were not included in the 12/31/05 inventory count.
b Goods sold FOB SHIPPING POINT for $430,000, are in transit at 12/31/05. A sale was not recorded. The goods, which have a cost of $290,000, were included in the 12/31/05 inventory count.
c Inventory count at 12/31/03 was understated by $70,000
Inventory count at 12/31/04 was overstated by $50,000.
d Mets Co's goods out on consignment at 12/31/05, with a cost of $90,000, were not included in the 12/31/05 inventory count. The goods have a selling price of $170,000, but no sale was recorded.
e New York Co's goods, with a selling price of $110,000, are held by Mets Co on consignment at 12/31/05. A purchase was recorded. The goods were not included in the 12/31/05 inventory count.
** 1) Determine the amount that each of the following is wrong and indicate if overstated, understated, or ok: 1) Sales FYE 12/31/05; 2) Inventory, 1/1/05; 3) Purchases FYE 12/31/05; 4) Inventory, 12/31/05; 5) COGS FYE 12/31/05; 6) Gross Profit FYE 12/31/05.
CLUE must match:Ignoring direction, Sales are misstated by $230,000 MORE than Ending Inventory
1. Sales FYE 12/31/05 - The sales are understated by $430,000. Under FOB shipping point, the title passes to the buyer once the goods leave the seller. The goods are in transit so the sales should have been recorded.
2. Inventory 1/1/05 - Overstated $50,000. The closing inventory of 12/31/04 becomes the opening of 1/1/05 for the overstatement continues. The inventory of 12/31/03 would be compensated in 2004 and ...
The solution explains the calculation of Sales, Inventory, Purchases , and Gross Profit after adjusting the inventory account.