Question

Please do the required 1 and required 2 .

The December 31, 2018, inventory of Tog Company, based on a physical count, was determined to be $456,000. Included in that count was a shipment of goods received from a supplier at the end of the month that cost $56,000. The purchase was recorded and paid for in 2019. Another supplier shipment costing $23,000 was correctly recorded as a purchase in 2018. However, the merchandise, shipped FOB shipping point, was not received until 2019 and was incorrectly omitted from the physical count. A third purchase, shipped from a supplier FOB shipping point on December 28, 2018, did not arrive until January 3, 2019. The merchandise, which cost $86,000, was not included in the physical count and the purchase has not yet been recorded. 34 20 polnts The company uses a periodic inventory system. 8 0229:31 Required: 1. Determine the correct December 31, 2018, inventory balance and, assuming that the errors were discovered after the 2018 financial statements were issued, analyze the effect of the errors on 2018 cost of goods sold, net income, and retained earnings. (Ignore income taxes. 2. Prepare a journal entry to correct the errors. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the correct December 31, 2018, inventory balance and, assuming that the errors were discovered after the 2018 financial statements were issued, analyze the effect of the errors on 2018 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) Effect Amount Correct ending inventory Cost of goods sold Net income Retained earnings < Required 1 Required 2 >

Answer 1

1.

Compute correct Inventory balance as follows:

	Amount
Physical Inventory	$456,000
Add: Merchandise inventory (FOB) ($23,000 + $86,000)	$109,000
Correct Ending inventory	$565,000

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Analyze the effect on:

Change in COGS
Change in Net Purchase ($56,000 + $86,000)	$142,000	Understated
Change in Ending inventory	($109,000)
	$33,000	Understated

Net Income reduced by $33,000

Retained Earning is also reduced by $33,000.

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2.

Prepare journal entries as follows:

Account Title and Explanation	Debit	Credit
Retained Earnings	$33,000
Inventory	$109,000
Accounts payable		$142,000
(To record correction of inventory valuation)