Reference no: EM131521126

Question: Eddie's Galleria sells billiard tables. The company has the following purchases and sales for 2012.

Eddie is worried about the company's financial performance. He has noticed an increase in the purchase cost of billiard tables, but at the same time, competition from other billiard table stores and other entertainment choices have prevented him from increasing the sales price. Eddie is worried that if the company's profitability is too low, stockholders will demand he be replaced. Eddie does not want to lose his job. Since 60 of the 400 billiard tables sold have not yet been picked up by the customers as of December 31, 2012, Eddie decides incorrectly to include these tables in ending inventory. He appropriately includes the sale of these 60 tables as part of total revenues in 2012.

Required: 1. What amount will Eddie calculate for ending inventory and cost of goods sold using FIFO, assuming he erroneously reports that 110 tables remain in ending inventory?

2. What amount would Eddie calculate for cost of goods sold using FIFO if he correctly reports that only 50 tables remain in ending inventory?

3. What effect will the inventory error have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2012?

4. Assuming that ending inventory is correctly counted at the end of 2013, what effect will the inventory error in 2012 have on reported amounts for (a) ending inventory, (b) retained earnings, (c) cost of goods sold, and (d) net income (ignoring tax effects) in 2013?