You are engaged to audit the Ferrick Corporation for the year ended December 31,
ID: 2545242 • Letter: Y
Question
You are engaged to audit the Ferrick Corporation for the year ended December 31, 2015. Only merchandise shipped by the Ferrick Corporation to customers up to and including December 30, 2015, has been eliminated from inventory. The inventory as determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an FOB–shipping point basis. You are to assume that all purchase invoices have been correctly recorded.
The following lists of sales invoices are entered in the sales journal for the months of December 2015 and January 2016, respectively.
Required:
Prepare necessary adjusting entries for the following events.
a.
b.
c.
d.
e.
f.
h.
Sales Invoice Amount Sales Invoice Date Cost of Merchandise Sold Date Shipped December 2015 a. $ 3,000 Dec. 21 $ 2,000 Dec. 31 b. 2,000 Dec. 31 800 Dec. 13 c. 1,000 Dec. 29 600 Dec. 30 d. 4,000 Dec. 31 2,400 Jan. 9 e. 10,000 Dec. 30 5,600 Dec. 29* January 2016 f. $ 6,000 Dec. 31 $ 4,000 Dec. 30 g. 4,000 Jan. 2 2,300 Jan. 2 h. 8,000 Jan. 3 5,500 Dec. 31 *Shipped to consignee.Explanation / Answer
a. Since the goods were shipped on December 31, the sale should be recognized in 2015. Because the inventory balance at 31 Dec 2015 was included this shipment, the adjusting entry is:
COGS $2,000
Inventory $2,000
b. This transaction is correctly recorded. No adjusting entry.
c. This transaction is correctly recorded. No adjusting entry.
d. The sale should be recorded in 2016 since the goods were shipped on January 9.The adjusting entry should be made:
Accounts Receivable (4,000)
Sales (4,000)
e. No sales is recorded since goods was shipped to a consignee. Goods are transferred from Inventory account to Goods on Consignment. Adjusting entries are:
Accounts receivable (10,000)
Sales (10,000)
COGS (5,600)
Inventory (5,600)
Goods on Consignment 5,600
Inventory 5,600
f. Since the shipment was on Dec 30, it was not included in the physical inventory .The sale should be recorded in 2015. The adjusting entry is:
Accounts receivable $6,000
Sales $6,000
g. This transaction is correctly recorded. No adjusting entry.
h. Similar to transaction a, the shipment was on Dec 31 so the sales should be recorded in 2015. Because the inventory balance at 31 Dec 2015 was included this shipment, the adjusting entry is:
Accounts receivable $8,000
Sales $8,000
Cost of merchandise sold $5,500
Inventory $5,500
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