Irene uses a calendar-year acc

  1. Irene uses a calendar-year accounting period and a periodicinventory system. Assume Irene had the followingindependent situations:
  • Situation 1. Goods shipped to Irene by a vendor f.o.b. shippingpoint on 12-28-11 were in transit at 12-31-11. The goods cost$15,000. On 12-29-11, Irene recorded a credit purchase of$15,000.
  • Situation 2. Goods shipped by Irene to a customer f.o.b.destination on 12-29-11 were in transit at 12-31-11. The goods cost$5,000. On 12-29-11, Irene recorded a credit sale of $12,000.
  • Situation 3. Goods shipped to Irene by a vendor f.o.b.destination on 12-30-11 were in transit at 12-31-11. The goods cost$8,000. On 12-30-11, Irene recorded a credit purchase of$8,000.

Assume Irene values the inventory reported on its balance sheetand the amount recorded as cost of goods sold on its incomestatement on the basis of its physical inventory count that Ireneperformed on 12-31-11. Irene counts whatever is on its premises.Individually discuss the effect (in dollars anddirection, e.g., overstate, understate, no effect) that each of theabove items has on:

  • Irene’s sales revenue for the year ended 12-31-11
  • Irene’s cost of goods sold for the year ended 12-31-11
  • Irene’s accounts receivable as of 12-31-11
  • Irene’s inventory as of 12-31-11
  • Irene’s accounts payable as of 12-31-11
  • Irene’s stockholders’ equity as of 12-31-11

Situation

#

I’s sales for year ended 12-31-11

I’s COGS for year ended

12-31-11

I’s AR as of 12-31-11

I’s inventory as of 12-31-11

I’s AP as of 12-31-11

I’s SE as of 12-31-11

1

2

3

Remember, each box above should have BOTH an effect ANDa $ amount.

Answer:

Situation I’s sales for year ended 12-31-11 I’s COGS for year ended I’s AR as of 12-31-11 I’s inventory as of 12-31-11 I’s AP as of 12-31-11 I’s SE as of 12-31-11
# 12/31/2011
Situation 1. Goods shipped to Irene by a vendor f.o.b. shippingpoint on 12-28-11 were in transit at 12-31-11. The goods cost$15,000. On 12-29-11, Irene recorded a credit purchase of$15,000. $15,000 $15,000 $15,000
Increase No effect Increase
Situation 2. Goods shipped by Irene to a customer f.o.b.destination on 12-29-11 were in transit at 12-31-11. The goods cost$5,000. On 12-29-11, Irene recorded a credit sale of $12,000. $12,000 $5,000 $12,000
No effect No effect No effect
Situation 3. Goods shipped to Irene by a vendor f.o.b.destination on 12-30-11 were in transit at 12-31-11. The goods cost$8,000. On 12-30-11, Irene recorded a credit purchase of$8,000. $8,000 $8,000 $8,000
Increase No effect Increase

 
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