Question

Abel Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2017 or during the first few days of 2018. The inventory, determined by physical count, was taken after the close of business on December 31, 2017. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory.

Instructions

1. On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2017, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction.
2. Prepare all necessary correcting entries for 2017.
3. Indicate which of the correcting entries must be reversed in 2016 by preparing the necessary reversing entries.

	12/31/17 Physical Inventory	2017 Income
An invoice for $7,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2.
An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31.
An invoice for $4,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31.
An invoice for $800, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2.
An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31.
An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31.
Merchandise costing $15,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment.

Answer 1

Ans-

	Physical Inventory		2017 Income
1	Understated		No effect
2	No effect		No effect
3	Over Stated		Understated
4	Understated		No effect
5	No effect		No effect
6	Over Stated		Understated

Correcting ENtries :

3		Cost of Goods Sold		4000
		Retained Earnings				4000
6		Cost of Goods Sold		1500
		Retained Earnings				1500

	12/31/17 Physical Inventory	2017 Income
An invoice for $7,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2.	No effect	No effect
An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31.	Overstated	No effect
An invoice for $4,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31.	NO effect	understated
An invoice for $800, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2.	Overstated	Understated
An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31.	No effect	No effect
An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31.	Overstated	Understated
Merchandise costing $15,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment.	Overstated	Understated