Question

Steven Garcia, an auditor with Knapp CPAs, is performing a review of Sheridan Company s inventory account. Sheridan did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $645.000. However, the following information was not considered when determining that amount. 1. Included in the company's count were goods with a cost of $216,000 that the company is holding on consignment. The goods belang to Agler Corporation. 2. The physical count did not include goods purchased by Sheridan with a cost of $36.400 that were shipped FOB shipping point on December 28 and did not arrive at Sheridan's warehouse until January 3. 3. Included in the inventory account was $21,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. 4. The company received an order on December 29 that was hoxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $36,400 and a cost of $27,300. The goods were not included in the count because they were sitting on the dock 5. On December 29, Sheridan shipped goods with a selling price of $85,500 and a cost of $66.500 to Central Sales Corporation FOB shipping point. The goods arrived on January 3. Central Sales had only ordered goods with a selling price of $10.900 and a cost of $8,720. However, a sales manager at Sheridan had authorized the shipment and said that if Central wanted to ship the goods back next week, it could. 6. Included in the count was $46,800 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Sheridan's products. it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, 'since that is what we paid for them, after all." Prepare a schedule to determine the correct inventory amount. Ending inventory-as reported 615000 Less : Goods belong lo Agler Corporation 216000 i Add : Goodis belong to Sheridan as soon as they are shipped 16400 Tess : Office Supplies should be carried in a separate arrount 21000 i Add : Gooxts belong to Sheridan until they are shipped 27300 Add : Goods shipped to Central Sales corporation FOB shipping point 19000 Less : Goods that were parts for a machine that the company no longer made 45000 i Correct inventory 510400 Textbook and Media

Answer 1

Preparation of a schedule to determine the correct inventory amount

Particulars				Amount ( $ )
Ending Inventory as reported				645,000
1. Less Goods belong to Agler Corporation				216,000
2. Add Goods belong to Sheridan as soon as they are shipped				36,400
3.Less Office supplies should be carried in separate account				21,000
4. Add Goods belong to Sheridan until they are shipped				27,300
5. Add Goods shipped to Central Sales Corporation FOB shipping point				66,500
6. Less Goods that were parts for a machine that the company no longer made				46,800
Correct Inventory				491,400