Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 6: 12RQ (page 357)

When does an inventory error cancel out, and why?

Short Answer

Expert verified

Inventory error is cancelled out after two periods due to the opposite effects of the inventory error for the current period and the upcoming period.

Step by step solution

01

Inventory error

Inventory error is the effect of a wrong inventory value on the other values of the income statement. Thus, if the ending inventory value has been calculated wrongly, there would be an effect on the COGS, gross profit, and net income.

02

Neutralizing inventory error

If the ending inventory has been computed wrongly there would be an inventory error for the current year and for the next year. But the total error of both periods would be canceled out. The reason is that the ending inventory for the current period would be the opening inventory for the next period.

So the inventory error created in the current period would be reversed in the next period and the net result would be the neutralization of the inventory error.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows

Jan. 5 Purchase 156 crates @ \) 64 each

13 Sale 180 crates @ \( 100 each

18 Purchase 114 crates @ \) 75 each

26 Sale 150 crates @ $ 116 each

Requirements

3. Prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company’s cost of goods sold, ending merchandise inventory, and gross profit. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Question:Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.

The first month’s milk purchases and sales at its Freeport, Florida, location follow:

Nov. 2 Purchased 11 gallons @ \(2.15 each

6 Purchased 2 gallons @ \)2.80 each

8 Sold 6 gallons of milk to a customer

13 Purchased 3 gallons @ $2.85 each

14 Sold 4 gallons of milk to a customer

Requirements

2. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the LIFO inventory costing method

Steel Mill began August with 50 units of iron inventory that cost \(35 each. During August, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Aug. 3 Sale 45 \) 85

8 Purchase 90 $ 54

21 Sale 85 88

30 Purchase 15 58

Requirements

5. Compute gross profit for August using FIFO, LIFO, and weighted-average inventory costing methods.

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.

Preparing a perpetual inventory record and journal entries—LIFO

Requirements

2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

6. If the business wanted to maximize gross profit, which method would it select?
See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Nature of Business

Read Explanation

Business Operations

Read Explanation

Introduction to Business

Read Explanation

Human Resources

Read Explanation

Financial Performance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free