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Question : 19) Canlan Inc. a subsidiary of a Canadian publicly traded

19) Canlan Inc. is a subsidiary of a Canadian publicly traded manufacturer of construction materials. The company uses the first-in, first-out (FIFO) cost flow assumption.

a. An invoice for $55,000 of material received and used in production arrived after the year-end. Neither the purchase nor the accounts payable was recorded until year two. However, the amount of raw materials in ending inventory was correct based on the inventory count.

b. One of Canlan's products became obsolete and worthless during Year 1, but the inventory writedown did not occur until Year 2. The cost of this inventory was $225,000.

c. In the Year 1 closing inventory count, employees improperly included 2,000 units of finished goods that had already been sold to customers. These units had a cost of $20,000 under FIFO.

Required:

For each of the above independent scenarios (a) through (c), indicate in the following table the effect of the accounting errors on the books of Canlan Inc. Specifically, identify the amount and direction of over- or understatement of inventory and income for Year 1 and Year 2. If an account requires no adjustment, indicate that the account is "correct."

Year 1Year 2

Inventory

Income

Inventory

Income

a.

b.

c.

20) Sampson Seadoos manufactures state-of-the-art seadoos. In 2015, the company's accountant recorded the following costs into the inventory account:

The company had no work in process at the end of both 2014 and 2015. Finished goods at the end of 2014 amounted to 8,000 seadoos at $900/seadoo. Production was 13,453 seadoos and 4,000 seadoos remained in inventory at December 31, 2015. The company uses a periodic inventory system and the FIFO cost flow assumption.

Required:

a.Of the $14,080,000, how much should have been capitalized into inventories?

b.Compute the ending value of inventory and the cost of goods sold for 2015.

c.If the error in inventory costing had not been corrected as per part (a), by how much would inventory be overstated at the end of 2015?

d.Record the journal entry to correct the error in inventory costing.

e.If the company uses the weighted-average cost method, how much would be the ending value of inventory and cost of goods sold for 2015?

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