HomeworkAnswersProblem 10-26B Effect of an Installment Note on Financial Statements
Sep 17, 2025
Accounting
The ending inventory for Carver Co. was incorrectly adjusted, which caused it to be understated by $15,300 for Year 2.
Required
Was each of the following amounts overstated, understated, or not affected by the error?
| Item No. | Year | Amount |
|---|---|---|
| 1 | Year 2 | Beginning inventory |
| 2 | Year 2 | Purchases |
| 3 | Year 2 | Goods available for sale |
| 4 | Year 2 | Cost of goods sold |
| 5 | Year 2 | Gross margin |
| 6 | Year 2 | Net income |
| 7 | Year 3 | Beginning inventory |
| 8 | Year 3 | Purchases |
| 9 | Year 3 | Goods available for sale |
| 10 | Year 3 | Cost of goods sold |
| 11 | Year 3 | Gross margin |
| 12 | Year 3 | Net income |
Exercise 5-14A: Estimating ending inventory
A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records:
Beginning inventory $ 60,000
Purchases to date of storm $ 190,000
Sales to date of storm $ 250,000
The value of undamaged inventory counted was $3,600. Historically, Prentiss’ gross margin percentage has been approximately 25 percent of sales.
Required
Estimate the following:
a. Gross margin in dollars.
b. Cost of goods sold.
c. Ending inventory.
d. Amount of lost inventory.
Exercise 5-15A: Estimating ending inventory: perpetual system
Brad Essary owned a small company that sold garden equipment. The equipment was expensive, and a perpetual system was maintained for control purposes. Even so, lost, damaged, and stolen merchandise normally amounted to 5 percent of the inventory balance.
On June 14, Essary’s warehouse was destroyed by fire. Just prior to the fire, the accounting records contained a $280,000 balance in the Inventory account. However, inventory costing $42,000 had been sold and delivered to customers but had not been recorded in the books at the time of the fire. The fire did not affect the showroom, which contained inventory that cost $58,000.
Required
Estimate the amount of inventory destroyed by fire.