Reference no: EM132462116

Question : The following situation was observed by Diego Industrial's senior accountant at December 31, 2017, the company's year end:

• Diego has parts inventory for use in its construction department (not for resale). The inventory includes over 1,500 different items, with between 10 and 100 of each item in stock. The cost of the individual items ranges from $0.30 to $1.50. In the past, the inventory quantities have been estimated by weighing the parts bins. This year, the accountant had the individual items counted and priced to provide more precise information. The total estimated value of the items is $45,000, which is material in total. It took four staff a full day to count the inventory at a cost of $1,000 in labour costs, and it would have taken two staff a half day to complete the estimate by weighing at a cost of $250. After the count, an entry of $27 was needed to reduce the inventory balance to actual. The entry was debited to Construction Supplies Expenses.

Instructions

Problem : For this event indicate the accounting assumption, concept, constraint, or recognition criteria that have been violated and provide your reason. Prepare the correcting entry required, or if no entry is required, explain what other change, if any, should be made to ensure that Diego's financial statements comply with GAAP.