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Chapter 6: 3RQ (page 357)

Discuss the materiality concept. Is the dollar amount that is material the same for a company that has annual sales of \(10,000 compared with a company that has annual sales of \)1,000,000?

Short Answer

Expert verified

No, the dollar amount or anything material would not be the same for both the companies having annual sales of $10,000 and $1,000,000.

Step by step solution

01

Materiality concept

The materiality concept states that accounting records should be made only for significant and materialistic items. The level of significance and materiality may differ from business to business.

02

Materiality concept in the given case

In the given case, one company has annual sales o $10,000 whereas the other company has annual sales of $1,000,000. So, the second company has 100 times higher sales than the first company.

Thus, due to the lesser level of sales, anything material would be of higher importance for the company first than the second company.

So, in this way, the dollar amount that is material would be 100 times of higher importance for the company first is than the company second.

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Most popular questions from this chapter

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costingmethod. (Assume purchases and sales are made on account.)

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:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

3. Which method results in a higher cost of goods sold?

Question:Broadway Communications reported the following figures in its annual financial statements:

Cost of Goods Sold $ 18,400

Beginning Merchandise Inventory 560

Ending Merchandise Inventory 450

Compute the rate of inventory turnover and days’ sales in inventory for BroadwayCommunications. (Round to two decimal places.)

Question:Hot Bread Bakery reported Net sales revenue of \(44,000 and cost of goods sold of \)33,000. Compute Hot Bread’s correct gross profit if the company made either of thefollowing independent accounting errors. Show your work.

b. Ending merchandise inventory is understated by $8,000.
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