At December 31, 2016, Skysong Corporation reported current assets of $358,170 an

Question

At December 31, 2016, Skysong Corporation reported current assets of $358,170 and current liabilities of $190,300. The following items may have been recorded incorrectly.

Secure https://edugen.wileyplus.com/edugen/shared/assignment/test/qprint.uni ACTG3110-001/ Ch 8 Exercises *Exercise 8-25 At December 31, 2016, Skysong Corporation reported current assets of $358,170 and current liabilities of $190,300. The following items may have been recorded incorrectly. 1. Goods purchased costing $19,960 were shipped f.?.b. shipping point by a supplier on December 28, Skysong received and recorded the invoice on December 29, 2016, but the goods were not included in Skysong's physical count of inventory because they were not received until January 4, 2017. 2. Goods purchased costing $14,800 were shipped f.o.b. destination by a supplier on December 26. Skysong received and recorded the invoice on December 31, but the goods were not included in Skysong'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 Skysong's December 31, 2016, physical count of inventory at $12,340. 4. Freight-in of $2,740 was debited to advertising expense on December 28, 2016 Compute the current ratio based on Skysong's balance sheet. (Round ratio to 2 decimal places, e.g. 2.31:1.) The current ratio Recompute the current ratio after corrections are made. (Round ratio to 2 decimal places, e.g. 2.31:1.) The current ratio By what amount will income (before taxes) be adjusted up or down as a result of the corrections? Assume that goods are sold in item #4 Adjust Income s Question Attempts: 1 of 3 used 2000-2018 by John Wiley& or related comparies. All rights

Explanation / Answer

1 Current Ratio = Current Assets/Current Liabilities 358170/190300 1.88 2 Current Assets = 358170+19960-12340+2740 = 368530 Current Liabilities = 190300 - 14800 = 175500 Current Ratio = 368530/175500 = 2.099 3 Event Effect of Error Adjust Income ( Increase /Decrease) 1 Understatement of ending inventory Decreases net income 19960 2 Overstatement of purchases Decreases net income 14800 3 Overstatement of ending inventory Increases net income 12340 4 Overstatement of advertising expense, understatement of cost of goods sold 0 47100

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