2) On December 31, 20x1, the Carmichael Company reported the töllul Current Asse

Question

2) On December 31, 20x1, the Carmichael Company reported the töllul Current Assets Current Liabilities Net Income $ 120,000 50,000 240,000 ear-end inventory was determined by a physical count at December 31, 20x1 The FIFO inventory method is used; the periodic inventory method is used. For the purchase of inventory: Shipping costs are treated as: Period costs The following transactions occurred at the end of the current fiscal year or at the the next fiscal year. Assume all transactions (for purchases and sales) are the current fiscal year or at the beginning of a] A transaction for the purchase of merchandise inventory: Terms: Shipping Date: Arrival Date: Cost of inventory: Shipping costs: Transaction recorded net 30; FOB Shipping Point December 28, 20x1 January 3, 20x2 $6,000 500 January 3, 20x2 b] A transaction for the sale of merchandise inventory: FOB Destination Terms: Shipping Date: Arrival Date: Cost of inventory: Sale price: Transaction recorded net 30; December 29, 20x1 January 4, 20x2 $ 3,400 $ 5,500 December 29, 20x1 c] Merchandise was sent, on consignment, to a sales representative Shipping Date: Arrival Date: Cost of inventory: December 23, 20x1 December 26, 20x1 2,350

Explanation / Answer

1. Working capital ratio before the errors were discovered = $ 120,000 / $ 50,000 = 2.40.

Event Current Assets Current Liabilities Net Income Before corrections $ 120,000 $ 50,000 $ 240,000 a. + 6,000 + 6,000 - 6,500 b. + 3,400 0 + 3,400 - 5,500 0 - 5,500 c. +2,350 0 0 d. 0 0 0 e. 0 0 0

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