Question

Exercise 6-02 Farley Bains, an auditor with Nolls CPAs, is performing a review of Indigo Corporation's Inventory account. Indigo 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 $801,620. However, the following information was not considered when determining that amount. Prepare a schedule to determine the correct inventory amount. (Show amounts that reduce inventory with a negative sign or parenthesis e.g. -45 or parentheses e.g. (45).) Ending inventory-as reported 1. Included in the company's count were goods with a cost of $205,400 that the company is holding on consignment. The goods belong to Nader Corporation. 2. The physical count did not include goods purchased by Indigo with a cost of $40,300 that were shipped FOB shipping point on December 28 and did not arrive at Indigo's warehouse until January 3. 3. Included in the Inventory account was $16,900 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 was 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 $37,110 and a cost of $29,950. The goods were not included in the count because they were sitting on the dock. 5. Included in the count was $48,500 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Indigo'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 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Ending inventory as reported	801620
1	-205400	Goods do not belong to Indigo Corporation
2	40300	Goods belong to Indigo Corporation as shipping terms are FOB shipping point
3	-16900	Should be recorded separately in Office Supplies account
4	29950	Goods belong to Indigo Corporation as not yet shipped
5	-48500	Should be recorded separately
Correct inventory	601070