USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS: The Phoenix Comp
ID: 2548266 • Letter: U
Question
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS:
The Phoenix Company reported income before taxes of $370,000 for 2017 and ending inventory at December 31, 2017 of $170,000. Phoenix uses the periodic inventory system. A later audit produced the following information:
Merchandise costing $17,500 was shipped to Phoenix FOB shipping point on December 26, 2017. The purchase was not recorded in 2017 and the merchandise was excluded from the ending inventory because it was not received until January 4, 2018.
On December 28, 2017, merchandise costing $29,000 was sold to Deluxe Ltd. Deluxe had asked Phoenix to keep the merchandise until they could come and pick it up. Because the merchandise was still on the loading dock waiting for pick up at year-end, the merchandise was included in the inventory count. Phoenix has a mark-up on cost of 60%. No sale was recorded as of December 31st.
Phoenix sold merchandise to Sun Devil, Inc. on December 30, 2017 for a selling price of $50,000 and terms FOB Destination. Mark up on cost for this type of merchandise is 60%. Phoenix recorded the sale on December 30th when they placed the goods on the common carrier. The goods were excluded from the physical count at year-end because they were not in the warehouse. They were still in transit at December 31, 2017.
Determine the effect of these errors on Phoenix’s financial statements as of December 31, 2017. Use O for overstated, U for understated, or NE for No Effect.
ASSETS
LIABILITIES
STOCKHOLDER’S EQUITY
$ Blank_3
$ Blank_4
$ Blank_5
1. a. Based on your analysis of all three transactions, determine the overall effect on Assets as of December 31, 2017: $[Blank_3]
2. Using the information presented in #2 above, determine the overall effect on Liabilities as of December 31, 2017: $[Blank_4]
3. Using the information presented in #2 above, determine the overall effect on Stockholder's Equity as of December 31, 2017: $[Blank_5]
4. Using the information presented in #2 above, Determine the correct ending inventory Phoenix Company should report on their year end balance sheet dated December 31, 2017. (*Phoenix was originally reporting ending inventory at $170,000.) $[Blank_6]
5. Using the information presented in #2 above, determine the correct income before taxes as of December 31, 2017 (*Phoenix was originally reporting Income Before Taxes of $370,000): $[Blank_7]
ASSETS
LIABILITIES
STOCKHOLDER’S EQUITY
$ Blank_3
$ Blank_4
$ Blank_5
Explanation / Answer
1 Assets Liability Shareholder Equity 1 Purchase to be recorded since its FOB shipping Price so inventory risk and reward transferred when it is shipped. 17500 U 17500 U 0 NE 2 Sales to be recorded because inventory has been sold just waiting for pick up 17400 U =29000*160%-29000 NE 17400 U 3 Sale not to be recorded since its FOB destination and stock it still in common carrier -18750 O =-50000+(50000-18750) NE -18750 O Total Impact 16150 U 17500 U -1350 O 2 Impact on liability because of 2nd transaction would be no impact. 3 Impact on shareholder equity because of 2nd transaction would be +17400. 4 Ending Inventory Reported 170000 2. Sales recorded -29000 Correct Inventory 141000 5 Reported income before tax 370000 Impact of 2nd transaction 17400 Correct Income 387400
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.