At December 31, 2016, Pronghorn Corporation reported current assets of $343,980

Question

At December 31, 2016, Pronghorn Corporation reported current assets of $343,980 and current liabilities of $196,600. The following items may have been recorded incorrectly.

Exercise 8-25 At December 31, 2016, Pronghorn Corporation reported current assets of $343,980 and current liabilities of $196,600. The following items may have been recorded incorrectly. 1. Goods purchased costing $20,440 were shipped f.?.b. shipping point by a supplier on December 28, Pronghorn received and recorded the invoice on December 29, 2016, but the goods were not included in Pronghorn's physical count of inventory because they were not received until January 4, 2017. 2. Goods purchased costing $15,950 were shipped f.o.b. destination by a supplier on December 26. Pronghorn received and recorded the invoice on December 31, but the goods were not included in Pronghorn's 2016 physical count of inventory because they were not received until January 2, 2017. 3. Goods held on consignment from Claudia Kishi Company were included in Pronghorn's December 31, 2016, physical count of inventory at $11,890. 4. Freight-in of $3,040 was debited to advertising expense on December 28, 2016 Compute the current ratio based on Pronghorn's balance sheet. (Round ratio to 2 decimal places, e.g. 2.31:1.) The current ratio LINK TO TEXT Recompute the current ratio after corrections are made. (Round ratio to 2 decimal places, e.g. 2.31:1.) The current ratio

Explanation / Answer

Current ratio = Current assets/Current liabilities = $343980/$196600 = 1.75 : 1

Current ratio after corrections = Corrected current assets/Corrected current liabilities = $355570/$180650 = 1.97 : 1

Adjust income: $27540

($20440 + $15950 - $11890 + $3040)

Current assets 343980 Add: Goods shipped F.O.B. shipping point 20440 Deduct: Goods held on consignment 11890 Add: Freight-in 3040 Corrected current assets $ 355570 Current liabilities 196600 Deduct: Goods shipped F.O.B. destination 15950 Corrected current liabilities $ 180650

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