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66 HASKINS & SELLS September Solutions to Problems PROBLEM NO. I THE solution to this problem requires only a small amount of thought, but it must be intensive thought. It must be noted first that the errors apply to 1916 and 1917 respectively. Those which relate to the inventory of December 31, 1916, affect the surplus. The adjustments of the inventory of December 31, 1917, affect the profit and loss account of the year ended on such date. The corrections of the errors increase or decrease the surplus or the profit and loss account respectively as the case may be. One of the main points in the problem is to test the candidate's knowledge as to whether or not the errors relating to the inventory of December 31, 1916, affect the profits for 1917. A further very troublesome point is the item of $4,000 for material received and included in the accounts payable but not included in the inventory. The suggestion is that the accounts were not in balance. No doubt many a candidate took that position and made a single entry, thereby offsetting the good results of his work up to that point. It is probable that when accounts payable were credited some account like purchases or merchandise was debited. When the books were closed there was made presumably the traditional entry, "Inventory new to Inventory old," or "Inventory to Merchandise or Purchases.' The entry was quite proper but the amount was $4,000 less than it should have been. The correcting entry would charge "Inventory" and credit "Profit & Loss". The reason for this is that the previous credit to merchandise on account of goods unsold was too small, resulting in a figure for cost of goods sold which was too large, and consequently a profit which was too small in the amount of $4,000. The entries in their entirety, but with explanations omitted for the sake of brevity, appear below: DECEMBER 31, 1916. Inventory $ 500 Surplus $ 500 Surplus 1,000 Inventory 1,000 DECEMBER 31, 1917. Profit & Loss $ 2,000 Inventory $ 2,000 Inventory 10,000 Profit & Loss 10,000 Inventory 4,000 Profit & Loss 4,000 The net effect of the errors on the profits of each of the two years is shown by the following ledger accounts : Surplus 12/31/16 Profit & Loss 12/31/17 $ 1,000 19,500 $20,500 $20,000 500 $20,500 $ 2,000 42,000 $44,000 $30,000 10,000 4,000 $44,000 $19,500 $42,000 It is possible that the correct solution t
Object Description
Title |
Solutions to problems |
Author |
Anonymous |
Subject |
Accounting -- Examinations, Questions, Etc. -- Wisconsin National Rubber Company |
Geographic Location |
Wisconsin |
Citation |
Haskins & Sells Bulletin, Vol. 02, no. 09 (1919 September 15), p. 66-70 |
Date-Issued | 1919 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 2-p66 |