Question

Questions 1-3. records of the DIRECTIONS: The following information app ing information applies to Questions 1 through 3. following errors in the records During your audit of the Avon Company, you for which the company: Fovo a purchase was Incorrect exclusion from the final inventory of items costing $3,000 for which purchase was not recorded. Inclusion in the final inventory of goods costing $5,000, although a purchas not recorded. The goods in question were being held on consignment from the period. The 3. Reldrey Company. Incorrect exclusion of correct exclusion of $2.000 from the inventory count at the end of the period goods were in transit (FO.B. shipping point); the invoice rau voor received and the purchase recorded. Inclusion of items on the receiving dock that were being held for return to the dor because of damage. In counting the goods in the receiving department, the items were incorrectly included. With respect to these goods, a purchase of $4.00 had been recorded. The records (uncorrected) showed the following amounts: 1. Purchases, $170,000 2. Pretax income, $15,000 3. Accounts payable, $20,000; and 4. Inventory at the end of the period, $40,000. D. $44,000 1. The corrected inventory is A. $36,000 B. $42,000 C. $43,000 2. The corrected income for the year is A. $12,000 B. $15,000 C. $17,000 3. The correct accounts payable liabilities are A. $16,000 B. $17,000 C. $19,000 4. An auditing procedure that is most likely to real D. $18,000 D. $23,000

how to get this answer？

Answer 1

The correct solutions are:

1. A. $36,000

2. A. $12,000

3. C. $19,000

Please check the below workings:

Solution S.No. Uncorrected Amount Purchases $ 1,70 000 Pretax Income Al Payable $15,000 $ 20,000 closing Inventan $40,000 3,000 (3000)| 3,000 2. - - | - | (5,000) 2,000 (400) (4,000) - $12,000 $36.000 Correct Amount $, 17,3000 s Scanned with CamScanner $23,000 $14,000

Clarifications:

1. Since the inventory has not been included earlier, we need to include it. This will increase the inventory at year end.

Since the transaction is not recorded, we need to pass the following journal:

Purchase Dr. $3,000

Accounts Payable Cr. $3,000

Since purchase is an expense, it will reduce the pretax income by$3,000.

2. Since Avon is a consignee here and consignee does not record the inventory in its books as it is not the owner. Hence, we need to reduce the inventory from the record. Since no journal was to be passed and the same was done, so no other effect will be given for this case.

3. Since $2,000 has not been included in inventory, we need to add it in inventory. As the purchase transaction is already recorded, we do not have to adjust anything else.

4. Since the inventory to be returned is still a part of inventory, we need to reduce it from inventory.

The journal for the return of inventory will be:

Accounts Payable Dr. $4,000

Inventory Cr. $4,000

Hence, we need to reduce the accounts payable by $4,000.