Kari Downs, an auditor with Wheeler CPAs, is performing a review of Depue Compan
ID: 2533085 • Letter: K
Question
Kari Downs, an auditor with Wheeler CPAs, is performing a review of Depue Company’s inventory account. Depue did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $733,000. However, the following information was not considered when determining that amount. Prepare a schedule to determine the correct inventory amount. (If an amount reduces the account balance then enter with a negative sign preceding the number , e.g. -15,000, or parenthesis e.g. (15,000). Enter 0 if there is no effect.) Ending inventory-as reported $ 1. Included in the company’s count were goods with a cost of $328,000 that the company is holding on consignment. The goods belong to Kroeger Corporation. 2. The physical count did not include goods purchased by Depue with a cost of $36,000 that were shipped FOB destination on December 28 and did not arrive at Depue warehouse until January 3. 3. Included in the inventory account was $27,000 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year. 4. The company received an order on December 29 that was boxed and sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $50,000 and a cost of $40,000. The goods were not included in the count because they were sitting on the dock. 5. On December 29, Depue shipped goods with a selling price of $88,000 and a cost of $70,000 to Macchia Sales Corporation FOB shipping point. The goods arrived on January 3. Macchia Sales had only ordered goods with a selling price of $16,000 and a cost of $8,000. However, a sales manager at Depue had authorized the shipment and said that if Macchia wanted to ship the goods back next week, it could. 6. Included in the count was $34,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Depue’s products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, “since that is what we paid for them, after all.” Correct inventory $
Explanation / Answer
Transaction / Event Ending Inventory as reported $ 733,000 1. Goods belonging to Kroeger Corporation, held on consignment. Not to be included in consignee's inventory (328,000) 2. Goods shipped FOB destination Correctly excluded 0 3. Office supplies included in inventory Not to be included, as the office supplies are not intended for sale. (27,000) 4. Goods sitting on dock, and hence not included Should be included, as title has not passed to buyer pending pick up by transporter 40,000 5. Goods sent on approval Should be included, till approval by buyer is signified 62,000 6. Obsolete inventory Should be written off the books (34,000) Correct inventory amount $ 446,000
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