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Chapter 22: Question 9 (page 1306)

Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at \(52,000. Of this amount, \)29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2017?

Short Answer

Expert verified

The remaining inventory is salvage inventory, and the current period amount is shown as a reduction of materials cost in financial statements

Step by step solution

01

Definition of salvage inventory

Salvage inventory is defined as the value of inventory left after its use.

02

Financial information preparation.

It will be handled as the correction of an error. The portion of the change related to the prior periods ($33,000) should be reported as the adjustment to the opening balance of retained earnings in 2007. Suppose the financial statements of the company are to be presented for comparative purposes. In that case, the remainder of the inventory value should be reported as a reduction of materials cost in financial statements.

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Most popular questions from this chapter

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