Response to the following problem:
The physical inventory for Ajak Manufacturing was taken on December 30, 2013, rather than December 31, because the client had to operate the plant for a special order the last day of the year. At the time of the client's physical count, you observed that acquisitions represented by receiving report number 2631 and all preceding ones were included in the physical count, whereas inventory represented by succeeding numbers was excluded. On the evening of December 31, you stopped by the plant and noted that inventory represented by receiving report numbers 2632 through 2634 was received subsequent to the physical count but before the end of the year. You later noted that the final inventory on the financial statements contained only those items included in the physical count. In testing accounts payable at December 31, 2013, you obtain a schedule from the client to aid you in testing the adequacy of the cutoff. The following schedule includes the information that you have not yet resolved:
|
Receiving Report Number
|
Amount of
Vendor's
Invoice
|
Amount Presently
Included in or Excluded from
Accounts Payable*
|
INFORMATION ON THE VENDOR'S INVOICE
|
|
Invoice Date
|
Shipping Date
|
FOB Origin
or
Destination
|
|
2631
|
$4,256.40
|
Included
|
12-30-13
|
12-30-13
|
Origin
|
|
2632
|
6,320.54
|
Excluded
|
12-26-13
|
12-15-13
|
Destination
|
|
2633
|
3,761.22
|
Included
|
12-31-13
|
12-26-13
|
Origin
|
|
2634
|
7,832.18
|
Excluded
|
12-16-13
|
12-27-13
|
Destination
|
|
2635
|
6,847.77
|
Included
|
12-28-13
|
12-31-13
|
Origin
|
|
2636
|
6,373.58
|
Excluded
|
01-03-14
|
12-31-13
|
Destination
|
|
2637
|
5,878.36
|
Excluded
|
01-05-14
|
12-26-13
|
Origin
|
|
2638
|
3,355.05
|
Excluded
|
12-31-13
|
01-03-14
|
Origin
|
Required
a. Explain the relationship between inventory and accounts payable cutoff.
b. For each of the receiving reports, state the misstatement in inventory or accounts payable, if any exists, and prepare an adjusting entry to correct the financial statements, if a misstatement exists.
c. Which of the misstatements in part b are most important? Explain.