Question

Capwell Corporation uses a periodic inventory system. The company's ending inventory on December 31, 2018, its fiscal-year end, based on a physical count, was determined to be $341,000. Capwell's unadjusted trial balance also showed the following account balances Purchases, $770,000, Accounts payable, $285,000, Accounts receivable. $300,000. Sales revenue, $950,000 The internal audit department discovered the following items 1. Goods valued at $47,000 held on consignment from Dix Company were included in the physical count but not recorded as a purchase. 2. Purchases from Xavier Corporation were incorrectly recorded at $72,000 instead of the correct amount of $27,000. The correct amount was included in the ending inventory 3. Goods that cost $40,000 were shipped from a vendor on December 28, 2018, terms fob. destination. The merchandise arrived on January 3, 2019. The purchase and related accounts payable were recorded in 2018 4. One inventory item was incorrectly included in ending inventory as 250 units, instead of the correct amount of 1.750 units. This item cost $50 per unit 5. The 2017 balance sheet reported inventory of $502,000. The internal auditors discovered that a mathematical error caused this inventory to be understated by $77,000. This amount is considered to be material. Comparative financial statements will be issued 6. Goods shipped to a customer fob destination on December 25, 2018, were received by the customer on January 4, 2019. The sales price was $55,000 and the merchandise cost $29,500. The sale and corresponding accounts receivable were recorded in 2018 7 Goods shipped from a vendor fob shipping point on December 27, 2018, were received on January 3, 2019. The merchandise cost $33,000. The purchase was not recorded until 2019 Required: 1. Determine the correct amounts for 2018 ending inventory, purchases, accounts payable. accounts receivable, and sales revenue 2. Calculate cost of goods sold for 2018 3. What was the effect of the error in ending inventory on 2017 before-tax income? Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Determine the correct amounts for 2018 ending inventory, purchases, accounts payable, accounts rece and cost of goods sold. Ending inventory Purchases Accounts payable Accounts receivable Sales revenue Cost of goods sold Req3 >

Answer 1

Item no.	Inventory	Purchases	Accounts Payable	Sales	Accounts receivabe
Balance given	$        3,41,000	$        7,70,000	$        2,85,000	$        9,50,000	$        3,00,000
1	$                     -	$            47,000	$                     -	$                     -	$                     -
2	$                     -	$         (45,000)	$                     -	$                     -	$                     -
3	$                     -	$         (40,000)	$         (40,000)	$                     -	$                     -
4	$              7,500	$                     -	$                     -	$                     -	$                     -
5	$            77,000	$                     -	$                     -	$                     -	$                     -
6	$            29,500	$                     -	$                     -	$         (55,000)	$         (55,000)
7	$            33,000	$            33,000	$            33,000	$                     -	$                     -
Corrected balance	$        4,88,000	$        7,65,000	$        2,78,000	$        8,95,000	$        2,45,000

Cost of goods sold
Opening stock	$          5,02,000
Purchases	$          7,65,000
Less: Closing stock	$       (4,88,000)
Cost of goods sold	$          7,79,000

Inventory	$ 4,88,000
Purchases	$ 7,65,000
Accounts Payable	$ 2,78,000
Sales	$ 8,95,000
Accounts receivabe	$ 2,45,000
Cost of goods sold	$ 7,79,000

3)

Because closing inventory understated, the cost of goods sold will increase. Hence the effect on profit before tax is that profit decreased by $77,000.