Question

During your audit of Patti Company's ending inventory at December 31, 2017, you find the following inventory accounting errors a. Goods in Patti's warehouse on consignment from Valley, Inc., were included in Patti's ending inventory b. On December 31, 2017, Patti received $4,700 worth of inventory, which was included in the 2017 ending inventory. However, the invoice on this merchandise was not received by Patti until Janua 3, 2018, at which time the purchase was recorded. The purchase should have been recorded in 2017 C. Patti purchased merchandise on account on December 30, 2017, but did not include these goods inventory or record the purchase. These goods were shipped by the vendor f.o.b. shipping point (title transfers when goods are shipped) and were in transit on December 31, 2017. d. Some of Patti's merchandise, shipped on consignment to Kaitlin Company in mid- December 2017 was excluded from the December 31, 2017, inventory. e. On December 28, 2017, Patti shipped goods costing $10,000 to Likert, f.o.b. destination (title transfers when goods are received). Likert received the goods on January 4, 2018, and notified P of their arrival. The goods were not included in Patti's 2017 inventory balance Required Assume that Patti uses the periodic inventory system. Indicate the effect (understate, overstate, or n effect) each of these errors would have on: Effect on 12/31/2017 12/31/2018 Ending Inventory Ending Inventory 2017 Cost of 2017 Cost Goods Sold 2018 Cost of Goods Sold 12/31/2017 12/31/2018 Accounts Payable Accounts Payable Error a) b) c) d) e)

Answer 1

Solution:

Patti Company
Effects on
Error	12/31/2017 Ending Inventory	12/31/2018 Ending Inventory	2017 Cost of goods sold	2018 Cost of goods sold	12/31/2017 Accounts Payable	12/31/2018 Accounts Payable
a)	Overstate	No Effect	Understate	Overstate	No Effect	No Effect
b)	No Effect	No Effect	Understate	Overstate	Understate	No Effect
c)	Understate	No Effect	No Effect	No Effect	Understate	No Effect
d)	Understate	No Effect	Overstate	Understate	No Effect	No Effect
e)	Understate	No Effect	Overstate	Understate	No Effect	No Effect